Fannie Mae Condo Rules in 2026: Owner Occupancy and the 10-Unit Waiver

By Frederick Blum, Broker/Owner of Blum Realty Group

Fannie Mae changed two condo financing rules in 2026 that can matter when you are buying, selling or refinancing a San Diego condo.

The first expanded the project-review waiver beyond two- to four-unit condo projects. Eligible five- to ten-unit projects can now use it too. The second removed the old 50% investor concentration condition for investment-property loans using Full Review in an established project.

Those changes address different questions. One concerns the project's size and structure. The other concerns the type of loan and the ownership mix in an established project. Fannie Mae announced both in Lender Letter LL-2026-03.

For a buyer planning to live in the condo, the expanded small-project waiver may be relevant. The retired 50% condition concerned investor loans under the established-project Full Review process; a principal-residence or second-home subject loan was already excepted from that particular test.

I would start with the lender's review method. Once you know which method applies to the actual project and your proposed loan, the remaining questions become much more specific.

What changed, and when?

The historical wording appears in the March 4, 2026 Selling Guide. The current rules are explained in Fannie's project-review waiver requirements, the March lender letter and its additional requirements for new projects.

The dates matter:

The August Selling Guide announcement preserves the applicable treatment for loans with application dates before August 3. It also explains why the Guide continues to show the current 10% reserve allocation while the lender letter sets out the future 15% standard. The new reserve standard will be incorporated into the Guide after January 4, 2027.

For applications subject to the new rules, established projects that previously qualified for Limited Review must be reviewed through Full Review or, when applicable, the waiver process. The lender needs to identify the current permitted path for the transaction.

For a loan in progress, ask the lender which application date and review requirements it is using.

The project can have ten units; your building's count may be different

The expansion is useful for a small condo project whose attached units previously fell outside the two- to four-unit size waiver.

Consider three hypothetical projects:

• An independent eight-unit condo project can use the expanded size waiver if it meets the applicable conditions.
• An independent ten-unit condo project is within the expanded range.
• An eleven-unit condo project is outside that size-based waiver.

Now consider an eight-unit building within a larger development or master association. Counting the eight doors in that building does not establish that the project qualifies for the expanded waiver. Attached units in a five- to ten-unit project that is part of a larger development or master association require Full Review under the waiver provision.

Ask the lender to identify the actual condo project, its unit count and any master association. The governing documents and project information should support that answer. Fannie's project-review methods table also distinguishes attached units, detached units, new projects, established projects and other eligible approval methods.

A review waiver still has conditions. The lender must address the unit's property eligibility, applicable insurance, lien priority and appraisal requirements when an appraisal is obtained. A project listed as Unavailable in Condo Project Manager remains excluded. Manufactured-home and certain refinance circumstances have additional provisions. The current waiver section is the place to check those details.

The practical benefit is a different project-review path. The buyer, the unit and the remaining requirements still need to work for the proposed mortgage.

What the retired 50% condition means for an investor

Suppose an established project has 20 units. Eight have been conveyed to principal-residence or second-home purchasers, and the other 12 are investment units. Assume for this example that the units are owned by separate, unrelated owners.

Eight divided by 20 is 40%.

Under the old established-project Full Review condition, an investor subject loan failed that occupancy test. A principal-residence or second-home subject loan was already excepted. The March 2026 change removes that specific condition for investor loans reviewed through this path.

That can change the lender's answer for an investor in an established, rental-heavy association. The lender still evaluates the applicable project requirements, including finances, insurance and physical condition. Other eligible review methods existed before the change, so the old Full Review test should be described in its proper context.

The borrower's intended use also remains important. Fannie Mae classifies the subject property as a principal residence, second home or investment property. A principal residence is the borrower's primary home, subject to the Guide's specified exceptions. The occupancy requirements continue to govern that classification.

When someone says the building's owner-occupancy percentage is a problem, I would ask which rule they mean: the former established-project investor condition, a current new-project requirement, another project issue or a lender-specific policy. My condo mortgage project-approval guide explains how to bring that specific answer back to the purchase decision and the contract timetable.

New-project presales and one-owner concentration remain separate questions

For a new or newly converted project subject to Full Review, at least 50% of the project or applicable legal phase must have qualifying conveyances or sale contracts to principal-residence or second-home purchasers. Fannie's new-project requirements retain that test.

For a hypothetical 20-unit new project reviewed as a whole, 50% means at least ten qualifying units. Confirm the applicable legal-phase treatment with the lender.

Single-entity ownership is another calculation. It looks at units held by the same person, investor group, partnership, sponsor or corporation, rather than adding together units owned by unrelated investors.

The current single-entity ownership limits identify:

The Guide also contains exclusions from the calculation and a conditional exception for certain purchases that reduce concentration.

Before the change, the two-unit category covered projects with five to twenty units. A single owner holding three units in an eight-unit project exceeded that ordinary limit. The revised table identifies five- to ten-unit projects within a master association; a qualifying standalone five- to ten-unit project can instead use the expanded waiver.

High investment or second-home use can also be a reason to investigate whether a project operates as a hotel or transient property. The Guide lists 75% or more investment/second-home ownership among hotel-related diligence indicators. Ask the lender to address the actual use and project characteristics under the ineligible-project rules.

How this fits with AB 2050 and reserve funding

The association's funding plan and the lender's review deserve attention together.

My AB 2050 guide explains the California law's new reserve-study and funding provisions, which become operative January 1, 2032. My analysis of reserve funding and homeowner affordability was featured in the Daily Mail's national coverage.

Fannie Mae's Full Review reserve allocation changes on a different timetable: loan applications dated January 4, 2027 or later. It also uses a different income base and review test from AB 2050.

For a hypothetical fixed $600,000 annual budgeted assessment-income base:

That is 50% more reserve allocation at the same income base. An actual dues decision depends on the existing contribution, funding choices, repair needs and resulting assessment income.

The Full Review budget and reserve-study rules also provide a reserve-study alternative with conditions. The study must show that funded reserves meet or exceed its recommendations, and the budget must include the study's highest recommended reserve allocation. Baseline funding, which allows projected cash to approach zero, cannot be used to replace the percentage requirement.

A small-project review waiver may change the lender's required project review. The association's repair obligations and the owner's share of future costs still belong in the purchase budget. Read the reserve study beside the adopted budget, financial statements, assessment notices and relevant repair records.

I want to see what the association expects to collect, what it expects to spend and when the larger bills arrive. Those records help you judge the ownership commitment even when the project has a simpler financing review.

What I would confirm before planning around the loan

For a buyer, I would get the lender's answer while there is time to act on it under the purchase agreement. For a seller, I would identify the association and available records before relying on a broad statement that the condo can be financed.

1. Identify the property and project. Confirm condo ownership, the actual project unit count and any larger development or master association.
2. Identify the subject loan. Confirm whether the intended use is a principal residence, second home or investment property, and which program the lender is evaluating.
3. Name the review method. Ask whether the lender is using a waiver, Full Review or another permitted approval method, and which application-date rules apply.
4. Get a specific document request. Ask which budget, insurance, repair, assessment or project records are needed and who can supply them.
5. Connect the answer to your decision date. Find out when the lender can finish its review and whether any conditions remain before planning around financing or removing a relevant contingency.

If a lender identifies an obstacle, ask it to distinguish the loan program's rule from its own additional policy. The answer should identify the requirement, the project facts and the evidence or change needed. The insurance, repair and lender-response sections of my project-approval guide explain that next step in more detail.

For help connecting the lender’s question to your purchase, sale or refinance, send the building, unit and financing question.