Fannie Mae Guidelines: Special Considerations for Non-Conforming Projects

When Your Project Needs Special Consideration

You're looking at a condo or co-op unit in a project that doesn't check all of Fannie Mae's standard boxes. Maybe the project has too many rental units, or the homeowners association has some unusual financial arrangements, or there's a pending lawsuit that affects the property.

This doesn't automatically disqualify your loan. Fannie Mae recognizes that some otherwise solid projects might have characteristics that fall outside their normal guidelines. The Project Eligibility Review Service exists specifically for these situations.

Say you found the perfect condo unit, but the building has 60% rental units when Fannie Mae typically requires no more than 50%. Or perhaps the HOA is dealing with a special assessment for major repairs. These are exactly the types of situations where PERS might help.

How the Special Consideration Process Works

Your lender initiates this process, not you. They must contact Fannie Mae's Project Standards team before submitting your loan application. The lender will explain why they believe the project merits special consideration despite not meeting standard requirements.

Fannie Mae reviews each request individually. They look at the specific circumstances that make the project non-conforming and weigh those against the overall risk profile. Some projects get approved with conditions, others get denied.

The review focuses on whether the non-conforming characteristics create real risk or are just technical violations of the guidelines. A project with strong finances and good management might get approved even if it has some unusual features.

What Your Lender Needs to Provide

Your lender must submit detailed documentation about why the project deserves special consideration. This typically includes the standard project review documents plus additional explanation of the non-conforming characteristics.

The lender needs to demonstrate that the project is financially stable and well-managed despite not meeting every guideline. They might provide extra financial statements, management company information, or legal opinions depending on the specific issues.

For projects with pending litigation, the lender would need to show that the lawsuit doesn't threaten the project's financial stability or your ability to use and enjoy your unit. For projects with high rental percentages, they might need to prove that the rental units are well-maintained and don't create problems for owner-occupants.

Why Fannie Mae Has This Exception Process

The standard project guidelines work for most situations, but real estate markets are complex. Some excellent projects might have characteristics that technically violate the rules but don't create meaningful risk.

Fannie Mae created PERS to avoid losing good loans over technical issues. They want to buy mortgages on solid properties, even if those properties don't fit perfectly into the standard categories.

The individual review process also protects Fannie Mae. Instead of blanket exceptions that might create systemic risk, they can evaluate each situation and approve only those projects that truly merit special consideration.

Common Situations That Might Qualify

Projects with slightly higher rental percentages than normally allowed often get consideration, especially if the rentals are well-maintained and the project has strong finances. Mixed-use buildings where the commercial space doesn't dominate the project might also qualify.

Buildings with pending litigation sometimes get approved if the legal issues don't threaten the project's stability. A lawsuit over landscaping contracts is different from one challenging the validity of the HOA's governing documents.

New construction projects that haven't yet met the typical pre-sale requirements might get consideration if the developer has a strong track record and adequate financial backing.

What Could Go Wrong

The biggest risk is timing. The PERS review adds weeks to your loan process, and there's no guarantee of approval. If you're in a competitive market with tight deadlines, this delay could cost you the property.

Even if Fannie Mae approves the project, they might impose conditions that affect your loan terms. You might face higher interest rates, larger down payment requirements, or additional documentation needs.

Some lenders avoid PERS requests entirely because of the uncertainty and extra work involved. If your lender isn't willing to pursue special consideration, you might need to find a different lender or a different property.

Planning for the Process

If you're interested in a unit that might need special consideration, discuss this with your lender early in the process. They can help you understand whether PERS is likely to succeed and how long it might take.

Consider having backup options ready. The PERS process can take several weeks, and approval isn't guaranteed. Having alternative properties identified can help if your first choice doesn't work out.

Make sure your purchase contract allows enough time for the extended approval process. Standard contract timelines might not accommodate the additional review period that PERS requires.

References

For the official guidelines, see B4-2.2-07: Projects with Special Considerations in the Fannie Mae Selling Guide.