By Michael H. Wasserman on Tuesday, 07 November 2023
Category: Wasserblawg

Buyers and sellers: new lending guidelines (and what to do about them)

Fannie Mae and Freddie Mac have both made significant changes to their guidelines for approving loans in condominiums and co-ops. This is a real game changer for buyers and sellers alikeLenders must follow these guidelines in order for loans to be guaranteed in secondary (investor) markets. Loan-originating companies only want to grant mortgages if they can be resold on those secondary markets. Many approvals will be harder to come by. 

It's all for safety's sake...and money, of course. You probably recall the horrific Champlain Towers South building collapse in Surfside, Florida. Nobody wants to live in or buy unsafe housing. And now, lenders do not want to risk their money to finance purchases of risky properties.

Fannie Mae and Freddie guaranty about 70% of all residential mortgages in America. They want to ensure those loan guarantees do not collapse, too (pun intended). So, they have shifted the onus of confirming building (and loan) safety from home-owners and homeowner's associations (HOAs) to loan originators—aka the buyer's lender. The agencies expect loan originators to take back bad loans made into unsafe properties. These companies are in the business of making loans, not buying them back.

So lenders really have no choice. They must confirm condos and co-op buildings with five or more attached units are safe, structurally sound, and habitable. We expect that most loan originators will treat two- four unit buildings in like manner.

It is all about Safety, Soundness, Structural Integrity, and Habitability (SSIH). With the new guidelines, lenders must confirm that:


Lenders must complete a questionnaire that asks:


In evaluating properties, lenders must:


Condo reviews were already a part of the mix. But the new guidelines require deeper, more meaningful inquiries.

Few board members have professional building maintenance experience. And it can be hard to guide a community through expensive choices. Homeowners hate high monthly and special assessments. Many communities vote NOT to act, even when they know repairs are necessary.

Buyers, owners, and Realtors may be willing to look the other way on some things. Fannie Mae and Freddie will not.

So now that we know what lenders must ask for, we can identify potential hot spots – things that may cause buildings not to be approved or make them hard to sell or finance:


Thinking of selling soon? Start preparing now:

Gather all other core condo documents as early possible. Doing so can improve the likelihood of a timely, successful and pleasant closing.

Ask your condo board if there are pending lawsuits, repair projects, or special assessments. Ask if there is there a reserve study. Then get those documents for review with your real estate lawyer as soon as possible. Lenders are not going to approve loans without the right answers and information. You may be able to head off problems at the pass.

Our firm can help manage the information and messaging sellers share with lenders and prospective buyers...to help get project approval quickly and efficiently.

Sellers can use our Fast-Track Sales Plan to find and address issues before they become deal killers.

Getting ready to Buy?

Ask your lender and broker about the condo project(s) you are interested in. Most lenders have access to the agency databases. Your loan officer can:


These guidelines are one of many recent shifts in the real estate landscape. Understanding them can help sellers and buyers have a less stressful transaction.

Feel free to schedule a call with me (Mike) or John, our lead attorney, to learn more about residential real estate closings in the Chicago area.

Also, check out these resources:

Our First Take on the FNMA Temporary Guidelines for Condo Reviews (2021)

FNMA Announcement SEL-2023-06

The Form 1076 Addendum

Fast-Track Sales Plan 

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