What Makes a Co-op Project Eligible
When you want to buy a co-op unit with a Fannie Mae-backed loan, the entire co-op project must meet specific eligibility requirements. This isn't just about your finances or the individual unit — the whole building and its financial health matter. The co-op corporation must qualify as a cooperative housing corporation under Section 216 of the Internal Revenue Code. Your lender needs documentation proving this compliance in their file. Without this IRS qualification, Fannie Mae won't purchase the loan. The co-op must own the entire property, including all dwelling units and common areas. Some co-op arrangements exist where individual owners hold title to their units — these "land-home" or "land-lease" co-ops require special approval and create complications for standard financing.
The 50% Sales Requirement
At least half of all shares in the co-op corporation must be sold to people who will live in their units as primary residences. For new construction projects, contracts for sale to principal residence purchasers count toward this threshold. This rule prevents situations where investors or developers control too much of the building. Say a 100-unit co-op building exists where only 30 units have been sold to actual residents. That project fails the 50% test and won't qualify for Fannie Mae financing. The lender verifies this through sales records and occupancy documentation from the co-op corporation or managing agent.
Financial Health Requirements
The co-op's finances must demonstrate stability. No more than 15% of owners can be more than 60 days past due on their monthly maintenance fees or special assessments to the co-op corporation. If the project shows negative cash flow for the current year, it cannot exceed 5% of the most recent audited financial statement. The co-op also cannot have operating losses for two consecutive years. Any negative cash flow must result from isolated, non-recurring expenses. Consider a co-op that spent $200,000 on emergency roof repairs last year, creating a temporary operating loss. If this was a one-time expense and the building otherwise operates profitably, it may still qualify. But if the co-op has been losing money for two straight years due to declining occupancy or rising expenses, it won't meet Fannie Mae standards.
Required Documentation
Your lender needs specific financial documents from the co-op corporation. The most recent operating budget and the two most recent years of audited financial statements or corporate tax returns are required. These documents must show the co-op meets the financial requirements outlined above. If the current budget isn't available, the lender can rely on the two years of financial statements or tax returns instead. The lender also needs evidence of the co-op's IRS Section 216 qualification and documentation showing the corporation holds good and marketable title to the property.
Special Rules for Converted Buildings
Newly converted co-op projects face additional scrutiny. Any newly converted non-gut rehabilitation project must go through Fannie Mae's Project Eligibility Review Service (PERS) for approval. A newly converted non-gut rehabilitation means a rental building converted to co-op ownership where less than 50% of the building's systems and components were replaced or rehabilitated. These conversions often involve minimal improvements, which creates more risk. However, some converted projects can skip PERS review. If the conversion involved gut rehabilitation (replacing 50% or more of building systems) or if it's a conversion of condos to co-ops, the lender can handle the review through standard processes.
Blanket Mortgage Considerations
Most co-op buildings carry a blanket mortgage that covers the entire property. Fannie Mae allows these blanket mortgages to be conventional loans, FHA-insured loans, or even balloon mortgages. If the blanket mortgage is a balloon loan, it must have at least three months remaining before maturity, with refinancing terms already secured, or the loan must be paid off before maturity. For adjustable-rate balloon mortgages with less than three years but more than six months remaining, the interest rate cannot adjust before the maturity date. Here's where it gets tricky: if Fannie Mae already owns an interest in the building's blanket mortgage, your individual loan amount must be reduced by your unit's proportional share of that blanket mortgage balance.
What Disqualifies a Co-op Project
Certain project types automatically disqualify a co-op from Fannie Mae financing. Manufactured housing co-ops cannot qualify, regardless of other characteristics. Projects subject to additional phasing or annexation are ineligible. All construction and rehabilitation must be 100% complete before Fannie Mae will purchase share loans, unless their Project Standards Team grants specific approval for earlier delivery. If subsidies or tax abatements that benefit the co-op will expire within three years, this creates complications. The lender must evaluate the impact and include the higher post-expiration fees in your debt-to-income calculations.
Common Problems That Trip Up Buyers
Many buyers don't realize their individual creditworthiness isn't enough — the entire building's financial health matters. A co-op with too many delinquent owners or consecutive operating losses will block your financing, even if you're financially qualified. Newly converted buildings often surprise buyers with PERS requirements. This review process adds time and uncertainty to your purchase timeline. Ask your real estate agent whether the building has already received PERS approval. Documentation gaps frequently delay closings. Co-op corporations sometimes struggle to provide current financial statements or proper IRS qualification evidence. Start requesting these documents early in your purchase process. The shared amenity rules can create unexpected issues. If your co-op shares facilities with other buildings, the arrangement must meet specific legal requirements. Parking situations under commercial leases can also complicate matters, though they're generally acceptable if structured properly.
References
For the official guidelines, see B4-2.3-02: Co-op Project Eligibility in the Fannie Mae Selling Guide.
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Original Fannie Mae Guideline Text
B4-2.3-02, Co-op Project Eligibility (08/06/2025)
Request for Co-op Project Information
Eligibility Requirements for Co-op Projects
Co-op Project Eligibility Overview
Fannie Mae purchases or securitizes co-op share loans for units in co-op projects from lenders specially approved to sell such loans to Fannie Mae. Lenders must determine the acceptability of a co-op project, unless the project is a newly converted non-gut rehabilitation of a co-op project. Such projects must be submitted via the Project Eligibility Review Service (PERS) to Fannie Mae for review.
The lack of available co-op project data and the inconsistent reporting of co-op project information can be a barrier to obtaining affordable financing for co-op housing. Lenders are responsible for determining the most appropriate method for obtaining information about co-op projects and the accuracy of the information they obtain.
For additional information, see:
,
,
,
.
Request for Co-op Project Information
The Request for Cooperative Project Information (
) includes the project information that lenders, investors, and mortgage insurers may use in their evaluation of the eligibility of a co-op project, and provides an efficient means of collecting basic project information from co-op project management agents, boards of directors, or sponsors/developers.
Eligibility Requirements for Co-op Projects
The table below provides project eligibility requirements for co-op projects.
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For New and Established Co-op Projects
For a co-op share loan to be eligible for sale, the co-op project in which the secured unit is located must qualify as a cooperative housing corporation under Section 216 of the Internal Revenue Service Code. The lender’s loan or project approval file must contain evidence regarding the project’s compliance with Section 216.
The co-op housing project must
The project may be owned in fee simple or be a leasehold estate (subject to a ground lease).
The lender is responsible for determining that the co-op cooperation holds title to the property of the co-op project, including the dwelling units. A type of co-op project that does not meet these requirements is one in which the borrower, not the co-op corporation, owns their dwelling unit in the project. Co-op share loans in these projects are commonly referred to as “land-home” or “land-lease” co-op projects and require special approval for delivery to Fannie Mae.
The co-op corporation must have good and marketable title to the property, including the dwelling units and amenities. The project premises must be free and clear of liens and encumbrances in accordance with
.
The blanket project mortgage may be a market-rate FHA-insured mortgage or a conventional mortgage.
The blanket mortgage for the project may be a balloon mortgage. The remaining term may not be less than three months, provided refinance terms have been secured, or the loan will be paid off before maturity. If the balloon mortgage incorporates an adjustable-rate feature, and the remaining term is less than three years but not less than six months, the current interest rate may not be subject to an interest rate adjustment prior to the maturity date.
Fannie Mae purchases or securitizes co-op share loans regardless of whether Fannie Mae owns the blanket mortgage. However, if Fannie Mae owns an interest in the blanket co-op project mortgage, the maximum mortgage amount available to the borrower must be reduced by the portion of the unpaid principal balance of the blanket mortgage(s) that is attributable to the subject unit’s ownership interest.
Fannie Mae will not purchase or securitize co-op share loans if the co-op project is an ineligible project type, regardless of the characteristics of the share loan. See
.
The project must not be a manufactured housing project.
The project must meet Fannie Mae’s insurance requirements, as stated in Subpart B7, Insurance.
Co-op projects may be newly constructed or conversions of existing buildings.
All newly converted non-gut rehabilitation of co-op share projects must be approved through the PERS process.
A newly converted non-gut rehabilitation co-op project is defined as follows:
The following newly converted projects may be reviewed by the lender through the standard co-op review process rather than being submitted to PERS:
All units, common areas, and facilities within the project must be 100% complete. The project cannot be subject to additional phasing or annexation. All construction and rehabilitation for the project must be completed in a professional manner before Fannie Mae purchases or securitizes the share loan, unless the Project Standards Team approves delivery at an earlier date.
Phase I and II environmental hazard assessments are not required for co-op projects unless the lender identifies an environmental problem through the performance of its project underwriting and due diligence.
In the event that environmental problems are identified, the problems must be determined to be acceptable, as described in
.
Stock, share, or other contractual agreement evidencing ownership, and the accompanying occupancy rights that represent at least 50% of the total number of stock or shares in the co-op corporation and the related occupancy rights of units in the project must have been sold and conveyed (or, for new construction, must be under contract for sale) to principal residence purchasers.
The project’s most recent operating budget and most recent two years audited financial statements, or corporate tax returns must
If the most recent budget is not available, the lender may rely on a review of the co-op corporation’s two most recent years audited financial statements or corporate tax returns to determine that the financial requirements in this section have been met.
If there is any negative cash flow for the present year, it may not exceed 5% of the co-op project's most recent audited financial statement and may not have two consecutive years' operating loss. The negative cash flow must be attributable to an isolated non-recurring expense.
If negative cash flow is from sponsor-held unsold units, the following requirements must be met:
The project must have a good financial record, with no more than 15% of the owners being more than 60 days past due in the payment of their financial obligations to the co-op corporation. Note: This includes payment of each special assessment.
If the project is a recipient of subsidies or similar benefits (such as tax or assessment abatements) that will terminate partially or fully within the next three years, the lender must evaluate the impact the expiration of such benefit will have on the project. If the benefit is scheduled to expire within three years from the note date, the lender must include the higher monthly fees in the borrower’s monthly liabilities for debt-to-income ratio qualifying purposes.
The project and share loan documentation must comply with any specific legal requirements established for the state in which the project is located.
The co-op corporation must have the sole ownership interest in the project’s facilities, common elements, and limited common elements, except as noted below.
Shared amenities are permitted only when two or more residential projects share amenities for the exclusive use of the unit owners. The associations or corporations must have an agreement in place governing the arrangement for shared amenities that includes the following:
Examples of shared amenities include, but are not limited to, clubhouses, recreational or fitness facilities, and swimming pools.
The developer may not retain any ownership interest in any of the facilities related to the project. The amenities and facilities, including parking and recreational facilities, may not be subject to a lease between the unit owners or the co-op corporation and another party. Parking amenities provided under commercial leases or parking permit arrangements with parties unrelated to the developer are acceptable.
