I am not sure you have heard but there are new condo rules coming into effect very soon. These new condo rules might make things harder when it comes to buying and selling condos. This is on top of a already tough market when it comes to selling condos due to higher HOA fees along with the higher interest rates.
What are the New Condo Rules?
Fannie Mae and Freddie Mac are setting up these new rules. The rules are aiming to make condos safer. While that sounds like a good idea you need to know how this might effect you.
The new rules change insurance requirements for condo buildings and communities and will effect lending processes. These effect the financing of the HOA and the Buildings condition. These rules mandate that condo HOAS now carry more in their reserves account so that they can adequately maintain the property.
So the point of the new rules is to reduce insurance and other costs so that buyers can buy with confidence with a aim of more being able to afford a condo. But this could result in delayed lending times and loan denials if the HOA is not following the new rules.
Why the New Rules May Delay Sales
HOA’s can often be slow when it comes to providing documents that sellers, buyers and lenders need. Sometimes these files are incomplete too. With lenders looking harder at these financial rules this could hold up the process of a buyer getting a loan. 40% of loans would just undergo a quick review, but that will no longer happen. As of August 3rd, lenders will be looking at HOA’s paperwork much closer.
Lenders will also now be taking harder looks at the condos financial position including and especially it’s budgeted reserves used to maintain the building/property and the number of owners overdue on paying their dues.
Some of these rules are already in effect as of today and there are extra rules coming into effect in January 2027.
What Happens in January 2027
In January, the amount that a condo association must spend on maintenance goes up to 15%. That means 15% of their annual assessment’s income must be saved and spent on repairs and maintenance, it is currently at 10%.
This has meant that for many HOA dues have gone up so that associations can start building these reserves. HOA’s are also not known for making quick changes, especially when it comes to financial changes. Many condos may not be in compliance with the new rules and lenders will not be able to approve a loan. This will make it harder for sellers to sell and buyers to buy.
So What To Do if You are Buying or Selling a Condo?
Patience will be key if buying a condo in the future. Your closing date may need to be a little longer than expected and you will want to keep that in mind. HOA fees may also be higher than you might have expected so know what you are getting for that money and be sure they fit into your budget. We have been seeing price reductions on Condo’s in a lot of areas which has helped buyers in some ways and offset some of those rising HOA fees.
You may also want to ask has there been a raise recently in condo fees or will they be raising it soon.
Sellers, get your condos reserve study, budget and insurance certificate if not all the paperwork for the HOA before you go on the market, this will give everyone a clearer picture and faster process. Also know if your HOA is warrantable (ask a lender or send me a email if you want more information on what this means).
The lenders I use are already on this and when possible, will look it up in advance.
So, while these new rules have good intentions there may be a transition period happening here into the Spring of 2027. It will remain to be see if more rules make things better or not.
