What Makes a Condo Project "New" Under Fannie Mae Rules
Fannie Mae treats newly built or recently converted condo projects differently than established communities. A "new" project means the developer still controls the homeowners association or recently turned it over to unit owners.
These projects face stricter requirements because they lack the track record of established communities. Fannie Mae wants proof the project is financially stable and won't become a problem for mortgage investors.
Say a developer just finished building a 100-unit high-rise and has sold 60 units. This counts as a new project even if construction wrapped up two years ago, as long as the developer maintains control or recently transferred it.
Project Must Be Substantially Complete
The building and all common areas must be finished before Fannie Mae will approve loans. "Substantially complete" means residents can move in and use all amenities, though buyers might still choose finishes like flooring or appliances.
A developer cannot sell units in a half-built tower where the pool area remains under construction or elevators don't work yet. The entire legal phase must be ready for occupancy.
Legal phases matter here, not marketing phases. If a developer markets "Phase 1" and "Phase 2" for sales convenience but the legal documents treat them as one phase, Fannie Mae considers the whole thing one phase that must be complete.
Owner-Occupancy Requirements Protect Against Investor Speculation
At least half the units must be sold to people who will live there as primary residences or second homes. This prevents new projects from becoming rental complexes dominated by investors.
Your lender will review the sales contracts and occupancy certifications to verify this ratio. If a project has 80 units and only 35 are sold to owner-occupants, it fails this test.
The developer must provide documentation showing which buyers plan to occupy their units versus rent them out. This includes purchase contracts with occupancy declarations and any rental restrictions in the project documents.
Budget and Reserve Requirements Ensure Financial Stability
The homeowners association must have a realistic budget that covers operating expenses and future repairs. Fannie Mae requires at least 10% of the annual budget go toward replacement reserves for major items like roofs, elevators, and HVAC systems.
Here's how the math works: If the HOA collects $500,000 annually in regular assessments, at least $50,000 must fund replacement reserves. Special assessments and rental income from commercial spaces don't count toward this calculation.
If the budget falls short of 10%, the project can still qualify two ways. The developer can commission a professional reserve study that proves the current funding is adequate, or unit buyers can contribute to a working capital fund equal to at least two months of HOA fees.
Assessment Delinquency Limits Protect Lenders
No more than 15% of units can be behind on regular HOA assessments by 60 days or more. The same 15% limit applies separately to any special assessments the HOA has levied.
This rule prevents lenders from financing units in financially troubled projects where many owners cannot pay their bills. A project with widespread delinquencies signals deeper problems that could affect property values.
Your lender will request a delinquency report from the HOA showing which units owe money and how long payments have been overdue. Even one unit over the 15% threshold can disqualify the entire project.
Required Documents for New Condo Project Approval
Lenders need extensive documentation to verify a new project meets Fannie Mae standards:
- Complete project budget showing income and expense allocations
- Reserve study or working capital fund documentation if reserves fall below 10%
- Sales contracts and occupancy certifications for all sold units
- HOA assessment delinquency report
- Project documents including bylaws, covenants, and master deed
- Engineer's report for converted buildings (if conversion occurred within three years)
- Insurance certificates showing adequate coverage
- Legal opinion confirming compliance with state condominium laws
The homeowners association or developer must provide most of these documents. Your lender cannot approve the loan without them, regardless of your personal qualifications.
Conversion Projects Face Additional Scrutiny
Buildings converted from other uses like apartments or offices must meet extra requirements if the conversion happened within the past three years. An engineer must certify the building is structurally sound and major components like roofing and mechanical systems will last.
A luxury apartment building converted to condos two years ago needs this engineer's report. But a warehouse converted to lofts five years ago does not, since more than three years have passed.
The engineer must specifically address structural integrity, remaining useful life of major components, and whether the building suits residential use. Generic inspection reports don't satisfy this requirement.
Why These Rules Exist
Fannie Mae learned from past housing crises that new condo projects carry unique risks. Developers sometimes rush to market before addressing construction defects or establishing adequate reserves. Projects dominated by investors can see rapid price swings that hurt long-term stability.
The owner-occupancy requirement ensures a stable community of residents who care about maintaining property values. Budget and reserve rules prevent associations from deferring maintenance until major repairs become unaffordable.
Assessment delinquency limits catch projects in financial distress before problems spread. When many owners cannot pay HOA fees, the association cannot maintain common areas or building systems properly.
Common Problems That Disqualify Projects
Several issues frequently prevent new condo projects from meeting Fannie Mae standards:
Too many investor purchases can push owner-occupancy below 50%. This often happens in markets where investors snap up units for rental income.
Inadequate reserve funding is another common problem. Developers sometimes set artificially low HOA fees to make units more attractive, leaving insufficient money for future repairs.
High assessment delinquencies signal financial problems among unit owners. This can result from overpriced units, economic downturns, or poor project management.
Incomplete construction or missing amenities violate the substantial completion requirement. Developers eager to start sales sometimes market units before finishing all promised features.
Special Rules for Florida Attached Condos
Fannie Mae will not finance attached condo units in new Florida projects unless the project has received special "Approved by Fannie Mae" status through their Condo Project Manager system. This restriction reflects Florida's unique condo laws and market conditions.
Detached condos in Florida don't face this limitation, only attached units like townhomes or high-rises. The special approval process requires additional documentation and review beyond standard new project requirements.
If you're buying an attached condo in a new Florida project, verify the project has this special approval before proceeding with your loan application. Your lender cannot override this requirement.
References
For the official guidelines, see 5701.6: New Condominium Projects in the Fannie Mae Selling Guide.
Mortgage guidelines change. Stay current.
Fannie Mae and Freddie Mac update their rules several times a year. Get notified when changes affect your mortgage eligibility, required documents, or loan terms.
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Original Freddie Mac Guideline Text
This section contains:
Project completion requirements
Owner-occupancy requirements for New Condominium Projects
Project budget requirement for New Condominium Projects
Delinquent assessments for New Condominium Projects
Compliance with laws
Limitations on ability to sell/right of first refusal
Mortgagee consent
Rights of Condominium mortgagees and guarantors
First mortgagee’s rights confirmed
Requirements when a Seller relies on a project reserve study for New Condominium Projects
Requirements when a Seller relies on contributions to a working capital fund for New Condominium Projects
New Condominium Project sold with excessive Seller contributions
New Condominium Projects in Florida
To be eligible for the New Condominium Projects review type, the Condominium Project must meet the definition of a New Condominium Project.
In addition to the project review and eligibility requirements in
Section 5701.2
, Mortgages secured by Condominium Units in New Condominium Projects must comply with all of the following requirements:
(a)
Project completion requirements
The subject legal phase (or the subject building) and any prior legal phases in which units have been offered for sale must be substantially complete. “Substantially complete” indicates that the Common Elements are complete and the units are complete subject to the selection of buyer preference items.
For the purpose of determining project completion under this Section 5701.6, a single building can only have one legal phase, regardless of whether the Condominium Project is comprised solely of that single building or multiple buildings. Legal phases are defined by the Project Documents. Construction or marketing phases developed for the convenience of the developer are not necessarily legal phases and are not eligible.
(b)
Owner-occupancy requirements for New Condominium Projects
At least 50% of the total units in the project (or at least 50% of the sum of the subject legal phase and prior legal phases) must have been conveyed or must be under contract to purchasers who will occupy the units as their Primary Residences or second homes.
For the purpose of calculating owner-occupancy under this Section 5701.6, a single building can only have one legal phase, regardless of whether the Condominium Project is comprised solely of that single building or multiple buildings. Legal phases are defined by the Project Documents. Construction or marketing phases developed for the convenience of the developer are not necessarily legal phases and are not eligible.
(c)
Project budget requirement for New Condominium Projects
The project’s budget for the current fiscal year must comply with the following:
The Homeowners Association’s (HOA’s) assessments must begin once the developer has ceased to pay operating expenses attributable to the Condominium Project, whether or not all units have been sold. When any unit owner other than the developer pays assessments, the developer must pay the assessments attributable to the unsold units.
The project’s budget (or its projected budget if the project has not been turned over to the unit owners) must be consistent with the nature of the project
Appropriate assessments must be established to manage the project
There must be appropriate allocations for line items pertinent to the type and status of the Condominium Project
If the project was recently converted, the developer must have initially funded a working capital fund, through contributions made by the developer and/or purchasers of the Condominium Units, in an amount consistent with the estimated remaining life of the Common Elements
There must be adequate funding for insurance deductible amounts
At least 10% of the budget must provide funding for replacement reserves for capital expenditures and deferred maintenance based on the project’s age, estimated remaining life and replacement cost of major Common Elements
Calculation of replacement reserve percentage
Exclusions
The replacement reserve percentage is determined by dividing: (i) the annual budgeted replacement reserve allocation by (ii) the HOA’s annual budgeted assessment income (including regular common expense fees)
The calculation may exclude:
Special assessment income
Income allocated to or in reserve accounts
Incidental income not relied upon for maintenance operations or capital improvements; and
Amounts collected from unit owners (but usually paid individually by them) for items or utilities such as internet access
If the budget does not provide a replacement reserve of at least 10%, a Seller may rely on either:
A reserve study, provided the conditions in
Section 5701.6(k)
below are met; or
Contributions to a working capital fund, provided the conditions in
Section 5701.6(l)
below are met. These contributions can be in addition to or in lieu of any working capital fund contributions made by the developer in the case of a recently converted project.
An HOA must not receive more than 10% of its budgeted income from the rental or leasing of commercial parking facilities
(d)
Delinquent assessments for New Condominium Projects
(i)
HOA assessments
No more than 15% of the total number of units in a project are 60 or more days delinquent in the payment of their HOA assessments.
(ii)
Special assessments
No more than 15% of the total number of units in a project are 60 or more days delinquent in the payment of each special assessment.
(e)
Compliance with laws
The Condominium Project has been created and exists in full compliance with the applicable State law, the requirements of the jurisdiction in which the Condominium Project is located, and with all other applicable laws and regulations governing creation of the Condominium Project.
(f)
Limitations on ability to sell/right of first refusal
Any right of first refusal in the Project Documents will not adversely impact the rights of a mortgagee or its assignee to:
Foreclose or take title to a Condominium Unit pursuant to the remedies in the Mortgage
Accept a deed or assignment in lieu of foreclosure in the event of default by a mortgagor; or
Sell or lease a unit acquired by the mortgagee or its assignee
(g)
Conversions
For a Condominium Project that was created by conversion of a building(s) with a prior use, the following requirements must be met for the Seller’s review and determination of project eligibility:
For a conversion involving a Non-Gut Rehabilitation of a prior use of the building that was legally created within the past three years, the engineer’s report (or functionally equivalent documentation for jurisdictions that do not require an engineer’s report) must state:
That the project is structurally sound
The condition and remaining useful life of the major project components are sufficient to meet the residential needs of the project; and
That there is no evidence that any of these conditions have not been met
Note: Major components include the roof, elevators and mechanical systems such as HVAC, plumbing and electricity.
All rehabilitation work involved in the conversion (Non-Gut Rehabilitation
and
Gut Rehabilitation) must be completed in a professional manner
A review of the engineer’s report (or functionally equivalent documentation) is not required for conversions involving:
A Gut Rehabilitation, and
A Non-Gut Rehabilitation if more than three years have elapsed since the legal creation of the project
(h)
Mortgagee consent
The Project Documents or applicable State law must provide that amendments of a material adverse nature to First Lien mortgagees be agreed to by mortgagees that represent at least 51% of the unit votes (based on one vote for each first Mortgage owned) subject to First Lien Mortgages
The Project Documents or applicable State law must provide that any action to terminate the legal status of the project or to use insurance proceeds for any purpose other than to rebuild must be agreed to by First Lien mortgagees that represent at least 51% of the unit votes (based on one vote for each first Mortgage owned) that are subject to First Lien Mortgages
The Project Documents may allow implied approval to be assumed when the then current mortgagee of record fails to submit a response to any written proposal for an amendment within 60 days after the then current mortgagee of record actually receives proper notice of the proposal, provided the notice was delivered by certified or registered mail, with a “return receipt” requested
(i)
Rights of Condominium mortgagees and guarantors
The Project Documents, applicable State law, or any applicable insurance policy must give the mortgagee and guarantor of the Mortgage on any unit in a Condominium Project the right to timely written notice of:
Any condemnation or casualty loss that affects either a material portion of the Condominium Project or the unit securing its Mortgage
Any 60-day Delinquency in the payment of assessments or charges owed by the owner of any unit for which it holds the Mortgage
A lapse, cancelation, or material reduction of any insurance policy maintained by the HOA
Any proposed action that requires the consent of a specified percentage of mortgagees
(j)
First mortgagee’s rights confirmed
The Project Documents must not give a Condominium Unit owner or any other party priority over any rights of the first mortgagee of the Condominium Unit pursuant to its Mortgage in the case of payment to the unit owner of proceeds from termination, or insurance proceeds or condemnation awards for losses to or a taking of Condominium Units and/or Common Elements.
(k)
Requirements when a Seller relies on a project reserve study for New Condominium Projects
The reserve study must comply with the following requirements:
The reserve study generally must include:
An inventory of major components of the project
Financial analysis and evaluation of current reserve fund adequacy; and
Proposed annual reserve funding plan
A reserve study’s financial analysis must validate that the project has appropriately allocated the recommended reserve funds to provide the Condominium Project with sufficient financial protection comparable to Freddie Mac’s standard budget requirements for replacement reserves
The reserve study’s annual reserve funding plan, which details total costs identified for replacement components, must meet or exceed the study’s recommendation and conclusion
The most current reserve study (or update) must be dated within 36 months of the Seller’s determination that a Condominium Project is eligible (see
)
The reserve study must be prepared by an independent expert skilled in performing such studies (such as a reserve study professional, a construction engineer, a certified public accountant who specializes in reserve studies, or any professional with demonstrated experience and knowledge in completing reserve studies)
The reserve study must meet or exceed requirements set forth in any applicable state statutes
The reserve study must comment favorably on the project’s age, estimated remaining life, structural integrity and the replacement of major components
If the Seller relies on a reserve study that meets the requirements of this section, the project’s budget must contain appropriate allocations to support the costs identified in the study.
The Seller must obtain and retain in the Mortgage file a copy of the reserve study. The Seller must also perform an analysis of the study and retain this analysis in the Mortgage file.
(l)
Requirements when a Seller relies on contributions to a working capital fund for New Condominium Projects
When a Seller relies on contributions to a working capital fund, the following requirements must be met:
The Project Documents must require the purchaser of a Condominium Unit to pay a non-refundable and non-transferable assessment to a working capital fund which must be established for the periodic maintenance, repair and replacement of the Common Elements
The assessment must be equal to a minimum of at least two months of the HOA fees attributable to the Condominium Unit and be due and payable at closing
(m)
New Condominium Project sold with excessive Seller contributions
If a builder, developer or property seller offers financing or sale arrangements (such as rent-backs, payments of principal, interest, taxes and insurance) for Condominium Unit Mortgages in a New Condominium Project these contributions must comply with the interested party contribution requirements of
Section 5501.6
.
(n)
New Condominium Projects in Florida
Mortgages secured by attached units in New Condominium Projects in Florida are not eligible, except when the projects have an “Approved by Fannie Mae” status designation in Fannie Mae’s Condo Project Manager™ (refer to
Section 5701.9(a)
for additional information).
Note: If the requirements for New Condominium Projects in this Section 5701.6 are met, then the Seller is not required to comply with the requirements for any of the other project review types in
,
5701.5 (Established Condominium Project reviews)
,
5701.7 (Exempt from review)
and
5701.9 (Reciprocal project reviews)
.
