What Illinois Condominium Associations Need to Know

About the New Fannie Mae Guidelines (March 18, 2026 Update)

The condominium landscape is changing—and fast. With the release of Fannie Mae’s latest guidance (click here for full Fannie Mae letter:  LL-2026-03 Project Standards_Insurance 03-18-26.pdf), Illinois condominium associations, board members, and property managers need to understand how these updates will affect financing, insurance, and long-term financial planning…and start discussing now, as some of the changes will go into effect soon!

Below is a practical breakdown of what these changes mean and how your association can prepare.

Why Were Changes Needed?

Fannie Mae’s updated guidelines are designed to address two growing concerns:

• Rising insurance costs and limited availability
• Underfunded reserves and deferred maintenance in condominium projects

These issues have increasingly impacted loan eligibility, unit sales, and overall property values. The new rules aim to strengthen the financial stability of condominium associations while making insurance requirements more flexible.

Key Changes to Condominium Project Standards

1. Higher Reserve Requirements (Major Impact)

One of the most significant updates is the increase in required reserve funding:

• Minimum reserve contributions rise from 10% to 15% of the annual budget
• Reserve studies must now reflect fully funded recommendations (no more baseline funding approach)

What this means for Illinois Associations:

• Many associations will need to increase assessments or reallocate budgets
• Underfunded associations may struggle with loan approvals for buyers
• Financial transparency becomes even more critical

2. Enhanced Reserve Study Expectations

If an association relies on a reserve study:

• The highest recommended funding level must be used
• Lenders can no longer accept minimal or “baseline” reserve strategies

Impact: Expect more scrutiny from lenders reviewing condo questionnaires and budgets.

3. Elimination of Limited Review Process

Fannie Mae is phasing out the Limited Review option:

• All projects must now go through Full Review or qualify for a Waiver of Project Review
• Effective fully by August 3, 2026

Impact:

• More documentation required for financing
• Smaller or simpler associations may benefit from waiver eligibility

4. Expanded Waiver of Project Review

Projects with 10 or fewer units may now qualify for a waiver (with conditions).

Impact:

• Small Illinois condo associations could see easier financing pathways
• However, insurance and maintenance standards must still be met

5. Removal of Investor Concentration Limits

Fannie Mae has removed the prior 50% investor cap for established projects.

Impact:

• Potentially more flexibility for investor-heavy buildings
• Could improve marketability in urban Illinois areas

Major Insurance Changes (Critical for Associations)

1. More Flexible Coverage Documentation

Fannie Mae has simplified how insurance adequacy is verified:

• No longer requires strict replacement cost calculations
• Accepts multiple forms of documentation (insurer estimates, appraisals, etc.)

Impact:

• Easier compliance for associations
• Reduced administrative burden

2. Roof Coverage Rules Relaxed

• Roofs must still be insured
• But replacement cost coverage is no longer required

Impact:

• Helps associations facing skyrocketing premiums
• Allows more flexibility in policy structuring

3. $50,000 Per-Unit Deductible Cap

• Maximum deductible per unit is now $50,000

Impact:

• Associations with higher deductibles may need to adjust policies
• Unit owners may need stronger individual (HO-6) coverage

4. Increased Responsibility for Unit Owners

• Unit owners must carry insurance when:
• The master policy doesn’t cover interiors, OR
• There is a per-unit deductible

Coverage must at least equal:

• The uncovered interior value, OR
• The deductible amount

Impact:

• Greater coordination needed between associations and owners
• Boards should educate owners about coverage gaps

What Your Condominium Association Board Should Do Now:

Review Your Reserve Funding

• Are you meeting (or close to) the 15% requirement?
• Is your reserve study current and realistic?

Reevaluate Insurance Policies

• Confirm deductible levels
• Review roof coverage structure
• Ensure compliance with new flexibility rules

Update Owner Communication

• Educate owners about new insurance responsibilities
• Encourage proper HO-6 coverage

Prepare for Stricter Lending Reviews

• Organize financials, meeting minutes, and maintenance records
• Expect more lender scrutiny during unit sales

The Bigger Picture

These changes reflect a broader shift: financial strength and risk management are now central to condominium eligibility.

For many condominium associations, this is both a challenge and an opportunity:

• Well-managed associations will become more attractive to buyers and lenders
• Poorly funded or underinsured properties may face declining marketability

Final Thoughts

Fannie Mae’s 2026 updates are not just regulatory tweaks—they represent a structural shift in how condominium communities are evaluated.  Associations that act early—by strengthening reserves, modernizing insurance strategies, and improving transparency—will be best positioned to thrive in this new environment.

Please contact Tressler’s HOA Law attorneys for more additional information on how to better prepare your community for these new changes.