Condo Financing and the Building Approval Most Buyers Never See Coming

Condo financing works differently from financing a single-family home, and most buyers find out why at the worst possible moment.

Three weeks into a contract, emotionally attached to the unit, with the seller getting impatient, the lender reveals that the building itself does not qualify.

The buyer’s credit, income, and down payment are all fine.

The building is the problem.

Understanding how condo financing works before making an offer changes everything.

✅ The Two Approvals Every Condo Buyer Needs

When you buy a house, your lender approves two things: you and the property.

Condo financing adds a third approval: the entire condo project, including the building, the HOA, and the association’s financial health.

Your personal approval covers the familiar stuff:

• Credit history and score
• Income and employment
• Debt-to-income ratio
• Assets and down payment

The condo project approval covers the building:

• HOA finances and reserve funds
• Delinquency rates on dues
• Pending lawsuits
• Investor ownership concentration
• Commercial space in the building

A fully qualified buyer can still be unable to close if the building fails the project review.

Warrantable vs Non-Warrantable Condos

These two terms come up in every condo financing conversation, and they are worth understanding before you start shopping.

A warrantable condo meets the standards set by Fannie Mae and Freddie Mac.

When a condo is warrantable, your lender can make a conventional loan and sell it on the secondary market, which is how most mortgage lending works.

A non-warrantable condo does not meet those standards.

The building might be perfectly safe and well maintained, but something about the project falls outside the agency guidelines.

When that happens, standard conventional condo financing is not available.

Think of it this way: you show up fully qualified to buy the unit, but the building itself is not eligible for the loan you are trying to use.

Your qualifications do not fix the building’s problems.

🛑 Why Condo Financing Rules Got Stricter

On June 24, 2021, the Champlain Towers South building in Surfside, Florida collapsed, and ninety-eight people died.

The building had known structural problems and insufficient reserve funds to fix them.

After Surfside, Fannie Mae, Freddie Mac, FHA, and VA all tightened their project review standards, focusing on whether an HOA has the financial health to maintain the building over time.

Freddie Mac made additional significant changes as recently as March 2026.

The stricter standards exist to protect buyers from ending up in buildings where repairs are being deferred, special assessments are looming, and resale becomes increasingly difficult.

The Five Building Problems That Kill Condo Financing Deals

When a lender reviews a condo project, the HOA fills out a questionnaire that functions like a financial audit of the building.

Five issues cause more condo financing deals to fall apart than anything else.

Too many owners behind on HOA dues

No more than 15% of units can be 60 or more days delinquent on HOA payments under conventional guidelines.

In a 100-unit building, that means 15 or fewer units.

If 16 owners are behind, conventional condo financing may not be available to anyone in that building regardless of personal credit.

HOA fees fund:

• Maintenance and repairs
• Insurance
• Building operations
• Reserve savings

When too many owners stop paying, the association cannot keep up with the building’s needs.

Not enough money in reserves

Reserve funds are savings set aside for major future expenses like roof replacements, elevator repairs, and structural work.

Conventional condo financing currently requires HOA reserves equal to at least 10% of the association’s annual budget income.

Freddie Mac is raising that threshold to 15% by January 4, 2027.

A buyer can have an 800 credit score and 25% down and still be unable to close if the HOA reserve account is sitting at 3%.

The reserve balance does not care how qualified the buyer is.

Active lawsuits involving the building’s safety or condition

Not all lawsuits affect condo financing.

A dispute over a landscaping contract or a parking policy usually does not matter.

Any active litigation involving structural safety, habitability, or the building’s physical condition can render a project entirely ineligible for conventional financing.

Project-level lawsuits affect every owner’s ability to finance, refinance, and sell, not just the units directly involved.

One investor owning too much of the building

In condo projects with 21 or more units, no single entity can own more than 20% of the units under conventional guidelines.

When one investor controls 30% of a building, it raises concerns about:

• Stability of the association
• Rental activity levels
• Long-term resale conditions for other owners

Too much commercial space

Mixed-use buildings can be appealing, but conventional condo financing generally requires that commercial space make up no more than 35% of the total project.

When retail or office space takes up more than a third of the building, standard conventional financing may not apply.

🔍 Check the Building Before You Fall in Love With the Unit

The single most protective step in condo financing is asking your lender to review the project before you go under contract.

Fannie Mae maintains a system called Condo Project Manager.

Your lender can look up the building and find out within a day or two whether it is already approved, already rejected, or not yet reviewed.

That check costs nothing and can save weeks of heartburn.

Also request HOA financial documents early.

The formal questionnaire does not go out until the loan is in process, which means buyers can be 10 to 14 days into a contract before a building problem surfaces.

Ask for these before or immediately after finding a unit you like:

• HOA budget and current financial statements
• Reserve fund balance
• Any pending or active litigation
• Delinquency information on HOA dues
• Owner-occupancy and investor-ownership breakdown
• Whether the project is already approved for your loan type

How Each Loan Program Handles Condo Financing Differently

Conventional, FHA, VA, and USDA loans all approach condo financing with different rules.

The loan type matters as much as the building.

Conventional loans

Fannie Mae and Freddie Mac require a full project review.

The lender collects the HOA questionnaire, evaluates the financials, and the project either clears or it does not.

Freddie Mac made notable changes in March 2026:

• Retired the streamlined review option for established buildings
• Expanded an exemption from full review for projects with 2 to 10 units
• Removed the owner-occupancy requirement for investment purchases in established projects

That last change means investors buying in established condo communities no longer need to worry about the 50% owner-occupancy rule under Freddie Mac’s guidelines.

FHA still has that requirement.

FHA loans

FHA maintains an approved condo list.

If the building is on the list, the financing moves forward using that approval.

If the building is not on the list, there is still a path called FHA Single Unit Approval, sometimes called a spot approval.

Under spot approval, the lender reviews the project using HUD form 9991.

The building still has to meet FHA standards, but the entire project does not need prior blanket approval.

Two things FHA buyers need to know:

• In projects with more than 20 units, no more than 10% of units can have active FHA loans at the same time
• At least 50% of units must generally be owner-occupied

The FHA concentration cap can close the door on the next buyer if a building has already reached its limit of FHA-insured loans.

VA loans

VA condo financing requires that the project be on the VA-approved condo list; there is no equivalent spot approval for VA buyers.

Lenders can check the VA list through a system called WebLGY.

If the building is not approved, the project can be submitted for VA approval, but that process takes time most purchase contracts do not allow.

New condo developments face an additional hurdle: VA generally requires 70% of units to be sold before approving the project. Many newer buildings do not meet that threshold.

Additionally, for stacked units in mid-rise or high-rise buildings, VA does not require a wood-destroying insect inspection.

For townhome-style condos with their own ground-level foundations, standard pest inspection rules for the area apply.

USDA loans

Most condo developments are in suburban or urban areas, so USDA and condos do not overlap often.

When they do, USDA does not run its own condo review.

If the project is already approved by Fannie Mae, Freddie Mac, FHA, or VA, USDA accepts that approval and certifies compliance from there.

The borrower still needs to meet USDA income limits and the property must be in an eligible rural area.

Non-warrantable condos

When a project does not qualify for conventional or government-backed financing, non-QM lenders and portfolio lenders may still be able to help.

The trade-offs usually include:

• Higher interest rates
• Stricter down payment requirements
• Fewer lender options

For an investor buying a unit that cash flows well, a higher rate may still make the numbers work.

For a first-time buyer already at the edge of their budget, a rate that is a full point higher can significantly affect affordability.

Know your number before you fall in love with the unit.

📈 Why Your Condo Rate May Be Higher Than a House Rate

Even when a condo project is warrantable and qualifies for conventional financing, the interest rate is often slightly higher than it would be on a comparable single-family home.

Condos have historically had higher foreclosure rates than detached homes, and condo markets can correct more sharply during downturns.

Lenders account for that risk through a pricing adjustment called a loan-level price adjustment, or LLPA.

That adjustment gets built into the rate rather than listed as a separate fee.

A borrower who qualifies for 6.5% on a house might see 6.625% or 6.75% on a comparable condo depending on loan-to-value and other factors.

Ask your lender to walk you through the LLPA for your specific scenario before going under contract. In some cases, a larger down payment can reduce the pricing impact.

Most buyers walk into a condo purchase prepared to prove that they’re qualified. Almost none of them think to check whether the building itself is qualified. Ask your lender to check the project before you make an offer.” — Wade Betz, Winning With Wade | Mortgage Education and Strategy

Condo Financing Checklist

Before making an offer:

• Ask your lender to check the project in Fannie Mae’s Condo Project Manager or the VA’s WebLGY system
• Request HOA financial statements and reserve fund balance
• Ask about any pending or active litigation involving the building
• Confirm HOA delinquency rate
• Check owner-occupancy and investor-ownership percentages
• Verify the project is eligible for your loan type before going under contract
• Ask your lender to explain the LLPA and how it affects your rate on a condo

📣 Frequently Asked Questions (FAQs)

Does condo financing require approval of the entire building?

Yes. In addition to approving the borrower, lenders review the condo project including HOA finances, reserve funds, occupancy mix, litigation, and investor concentration.

What does non-warrantable mean?

A non-warrantable condo does not meet the standard requirements for conventional financing set by Fannie Mae or Freddie Mac. It does not mean the building is unsafe or a poor investment. It simply means standard conventional condo financing is not available for that project.

Can I still get a loan if the condo is non-warrantable?

Possibly. Non-QM and portfolio lenders may finance some non-warrantable condos, though rates and down payment requirements are typically higher.

How much does an HOA need in reserves for conventional condo financing?

The current standard is at least 10% of annual budget income in reserves. Freddie Mac is raising its threshold to 15% by January 4, 2027.

Can an HOA lawsuit prevent condo financing?

Yes. Active litigation involving safety, structural soundness, or the building’s physical condition can render a project ineligible for conventional financing.

Can FHA approve one unit if the building is not on the approved list?

Yes. FHA Single Unit Approval, also called spot approval, may be available. The lender reviews the project using HUD form 9991, but the building must still meet FHA’s financial and project standards.

Does VA offer a single-unit condo approval?

No. VA condo financing requires the project to be on the VA-approved condo list. There is no spot approval equivalent for VA buyers.

Why is my condo rate higher than the rate I heard for a house?

Condos carry a loan-level price adjustment that reflects the historically higher foreclosure rates in condo markets. That adjustment is built into the rate rather than listed as a separate fee.

About the Author

Wade Betz

Mortgage Broker at Winning WIth Wade · NMLS #280613

Wade has been a stalwart in the mortgage industry since 2006, dedicating himself to helping thousands of families navigate the complexities of home financing. With so much experience, he stands out as a leading mortgage originator in the Dallas-Fort Worth area.

Specializes in: DSCR Loans, VA Loans, Reverse Mortgages

Licensed in: AL, AZ, AR, CA, CO, CT, FL, GA, ID, IL, IN, KS, LA, MD, MI, MS, MT, NE, NJ, NM, NC, OH, OK, OR, PA, SC, TN, TX, VA, WA, WI

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