The Fannie Mae and Freddie Mac 15% Condo Reserve Requirement

Published August 25, 2026. Every figure and every date on this page was read from the primary documents on August 24–25, 2026: Fannie Mae Lender Letter LL-2026-03, Fannie Mae Selling Guide B4-2.2-02, and the Freddie Mac Single-Family Seller/Servicer Guide Section 5701.5 in both its current and its future-dated form. Nothing here is taken from industry commentary. Where the primary documents disagree with each other, we say so rather than picking one.

The short version

One number changed, and three other things changed alongside it. Two of the four are already in force today.

Read the middle column carefully. Every one of these is keyed to the date a mortgage application is taken, not to your fiscal year, not to a filing deadline, and not to a date on which the association must do anything. Most coverage of this change calls January 4, 2027 a deadline for boards. It is not. It is the date from which a lender running a Full Review must see 15%. The practical consequence for a board is the opposite of reassuring, though: an application taken on January 4, 2027 will be reviewed against whatever budget you have adopted by then. If your fiscal year starts in January, the budget you adopt this autumn is the one that gets tested. If your fiscal year starts in July, the budget you adopt in mid-2027 is already too late for a January applicant.

What “15% of the budget” actually means

This is the part that is almost always reported loosely, and it is the part that changes what number a treasurer has to put on a spreadsheet. Both GSEs define the percentage the same way, and neither of them means “15% of what we spend.”

So the denominator is assessment income — the money you collect in regular dues. And here is the consequence nobody spells out: your reserve contribution is normally funded out of that same assessment income, so it sits in the numerator and the denominator at once. Raising the reserve line raises the dues, which raises the denominator, which raises the reserve line you need. The requirement is circular, and the circularity is not small.

Working it out: if O is everything the association budgets to spend other than reserves, and R is the reserve allocation, and dues are set to cover both, then satisfying R ÷ (O + R) ≥ 15% requires R ≥ 0.15 ÷ 0.85 × O, which is 17.65% of operating expenses, not 15%. The old 10% test required 11.11% of operating expenses. That is the honest translation of the rule into the only number a treasurer actually controls.

A worked example: a 24-unit condominium

Assume a 24-unit association with $153,000 of budgeted operating expenses — insurance, water, landscaping, management, utilities, administration — and no special assessment or excludable income. Dues are set to cover operating expenses plus the reserve line.

The two percentages in that table are the reason this rule is misread in both directions. The reserve line rises by 59%, which sounds catastrophic and is what a treasurer sees when looking at the reserve row. The dues rise by 5.9%, which is an ordinary annual increase and is what an owner sees on the coupon. Boards that quote the first number to their membership cause a panic they did not need to cause; boards that only look at the second number underestimate how much the reserve row has to move.

Arithmetic check: $27,000 ÷ ($153,000 + $27,000) = 15.0%. $180,000 ÷ 24 units ÷ 12 months = $625.00. Your association’s numbers will differ — unequal assessment allocations, excludable income and a non-calendar fiscal year all change the result. Run yours through the reserve contribution calculator, which is free and shows every assumption, and then put the figure into the reserve line of the annual budget workbook to see the dues it implies.

The reserve-study alternative survives — but it got harder, and that part is already in force

An association that cannot or does not want to budget the flat percentage can still qualify on the strength of a reserve study. Both GSEs kept that route. Both tightened it, on the same date, and this is the change that is live right now — it applies to loan applications dated on or after August 3, 2026.

Fannie Mae, LL-2026-03, verbatim: lenders “must verify the project’s budget includes the highest recommended reserve allocation amount in the reserve study to adequately cover the costs identified,” with the note that “Lenders are no longer permitted to use the baseline funding method which is the option that allows the reserve cash balance to approach but never fall below zero.”

Freddie Mac Guide 5701.5(d) says the same thing in its own words: a study whose funding goal “allows the reserve cash balance to approach but never fall below zero during the cash flow projection, referred to as baseline funding method, must not be used to waive the 10% reserve requirement” — and the future-dated version of that same sentence, effective January 4, 2027, reads “waive the 15% reserve requirement.”

Freddie Mac also publishes the study’s own qualifying conditions in plain terms, which is worth knowing before you commission one: it must be dated within 36 months of the lender’s eligibility determination; it must be prepared by “an independent expert skilled in performing such studies”; it must meet or exceed any applicable state statute; and it must “comment favorably on the project’s age, estimated remaining life, structural integrity and the replacement of major components.” A study that comments unfavorably does not help you.

What this means in practice. If your association has been funding on a baseline plan — a very common recommendation for small associations, because it is the cheapest plan that technically never runs out of money — that plan no longer buys you anything with a lender, as of three weeks ago. Our reserve study guide for small associations covers the difference between baseline, threshold and full funding, and what each costs.

If you have ten or fewer units, this may not reach you at all

The single most useful thing in LL-2026-03 for our readers is the provision that almost no coverage of it mentions, because it is good news rather than alarming news.

Fannie Mae, verbatim: “We are expanding eligibility for a Waiver of Project Review to include new and established projects with ten or fewer units. For projects consisting of five- to ten-units, the project must not be part of a master association or larger development.” Effective immediately. Where the project review is waived, the budget and reserve test is not performed at all — and Fannie Mae notes that general liability and fidelity insurance are not required for condo projects that qualify for the waiver either.

Freddie Mac reaches the same place through its Exempt From Review category, which covers a unit in a 2-to-4-unit project, a unit in a 5-to-10-unit project “that is not part of a master association,” and detached condominium units.

Two cautions before a small board relaxes. First, the waiver is the lender’s option, not the association’s — a lender may still run a Full Review, and other conditions apply, including that the project must not have an “Unavailable” status in Condo Project Manager and must meet the insurance requirements. Second, a waiver from Fannie Mae and Freddie Mac is not a waiver from your state statute or your own declaration, both of which may require reserve funding regardless.

The published rulebooks still say 10%, and only one GSE lets you read the new text

This is the finding that a board doing its own diligence will run into, so it is worth stating before you hit it.

Fannie Mae’s Selling Guide B4-2.2-02 still reads 10% today. We re-read it on August 25, 2026: it requires a budget that “provides for the funding of replacement reserves for capital expenditures and deferred maintenance that is at least 10% of the budget,” and its baseline-funding sentence still says “this method may not be used to waive the 10% reserve requirement.” There is no future-dated version of that section published for readers. The 15% figure lives only in the Lender Letter.

Freddie Mac handles it differently, and better for anyone trying to plan. The current Guide Section 5701.5, effective August 3, 2026, also says 10%. But Freddie Mac publishes a dated future revision of the same section alongside it, and that revision — effective January 4, 2027 — already reads “At least 15% of the budget must provide funding for replacement reserves.” You can read the exact operative text of the future rule today, at the source, in full.

Correction to our own earlier note. On August 24, 2026 we published, in the 2026 change log, that Freddie Mac’s alignment was “reported, not verified,” because we had only Fannie Mae’s assertion of alignment and secondary coverage. That residual is closed as of August 25, 2026: Freddie Mac’s own Guide text has now been read at source in both versions, and it matches on the percentage, on the January 4, 2027 application-date trigger, on the calculation formula, on the four income exclusions and on the baseline-funding prohibition. We have updated the change log accordingly.

The same letter changed your master insurance policy rules, and that got almost no attention

LL-2026-03 is titled “Updates to Project Standards & Property Insurance Requirements,” and the second half is arguably more immediate for a board renewing a master policy than the reserve percentage is. Four items, all read from the letter:

• A hard cap on per-unit deductibles. “The maximum allowable per unit deductible for all required property insurance perils covered by a master property insurance policy is $50,000 per unit.” Encouraged immediately; required for loans with application dates on or after July 1, 2026 — so it is already in force. If your carrier has been managing premium increases by pushing the per-unit deductible up, there is now a ceiling above which the project stops being financeable.
• Master coverage must equal at least 100% of estimated replacement cost value of the project improvements, and Fannie Mae now lists five acceptable ways to document that, including guaranteed or extended replacement cost coverage, an insurer’s estimate, or the project’s insurance risk appraisal.
• Inflation guard coverage is no longer required for project developments. That requirement is retired.
• Roofs no longer have to be insured on a replacement cost basis — but they must still be insured. This one cuts both ways, and a board should understand what its policy actually does before treating it as relief.
• If the master policy carries a per-unit deductible, each unit owner must carry an individual policy covering at least the amount of that deductible. Worth putting in your next owner newsletter; most owners will not know.

These are mortgage-eligibility standards, not insurance advice, and we are not insurance brokers. Take your actual master policy and this list to your agent before renewal.

What a board should actually do about this

1. Count your units. Ten or fewer, and not part of a master association or larger development? The reserve test may never be applied to you. Confirm it with a lender your owners actually use, and move on to your state statute instead.
2. Find your last reserve study and check its date and its funding method. Dated within 36 months, prepared by an independent qualified professional, and not baseline-funded? You may already qualify on the study route, using the study’s highest recommended allocation. Baseline-funded, or older than three years? That route is closed to you today, not in January.
3. Calculate your current percentage the way the lender will. Reserve allocation ÷ budgeted assessment income, with the four exclusions removed from the denominator. Do this before you decide anything — a fair number of associations already clear 15% and do not know it.
4. If you are short, work backwards from 17.65% of operating expenses, not 15%, or you will adopt a budget that misses. The reserve contribution calculator and the annual budget workbook will do the arithmetic and show it to your board.
5. Check your 60-day delinquency rate against the separate 15% ceiling. That one is already live and is the faster way to fail.
6. Put the master insurance items on the agenda for your next renewal, especially the $50,000 per-unit deductible cap.
7. Time it to the loan application date, not your fiscal year. If owners are likely to sell or refinance in early 2027, the budget you adopt this autumn is the one that will be read.

Sources

Every claim on this page traces to one of the four documents below. All were read in full or term-scanned at the source URL on the date shown. No industry commentary, vendor material or press coverage was used as a source for any figure or date.

What we have not verified, stated plainly

• No lender’s own overlay was read. Individual lenders may apply stricter standards, and may apply 15% before January 4, 2027. We have not confirmed any specific lender doing so, and we do not repeat the claim as fact.
• Co-op treatment was not separately traced. LL-2026-03 refers to condo and co-op budgets in some places and condo projects in others. If you are a housing cooperative, confirm your own position.
• We did not read the underlying Freddie Mac bulletin that produced the 01/04/2027 revision. We read the Guide text the bulletin produced, in both versions, which is the operative language.
• New condominium projects are governed by Freddie Mac Section 5701.6 and by different Fannie Mae sections; this page is written for established, owner-controlled associations.

Do this next

1. Run your components and current balance through the free reserve contribution calculator.
2. Read the reserve study guide for small associations if your study is older than three years or baseline-funded.
3. Put the resulting figure into the reserve line of the annual HOA budget template and see the dues it implies.
4. Check the 2026 HOA and condo law change log for your state’s own reserve rules, which apply independently of anything on this page.
5. Work the delinquency workflow if you are anywhere near the separate 15% past-due ceiling.