By Arbor Home Loans
Condo financing has become increasingly complex, and recent changes to lending guidelines, reserve requirements, and insurance standards could impact buyers and sellers in today’s Outer Banks market.
Condo transactions represent approximately 8–10% of residential sales on the Outer Banks, making it important to understand how these changes may affect your next transaction.
WHY CONDO FINANCING IS DIFFERENT?
When financing a condo, lenders evaluate both the borrower and the entire condo project.
In addition to the buyer’s financial qualifications, lenders may review:
✔ HOA financial health and reserve funding
✔ Property condition and deferred maintenance
✔ Master insurance coverage and deductibles
✔ Ownership and occupancy requirements
✔ Project-level litigation
✔ Investor concentration and ownership structure
As a result, even a highly qualified buyer can encounter financing challenges if the condo project doesn’t meet current requirements.
🔑 KEY LENDING CHANGES
Fannie Mae & Freddie Mac Reviews
The Limited/Streamlined Review process retires August 3, 2026. Projects without an applicable waiver will generally require a Full Review, which may require additional documentation regarding HOA finances, reserves, insurance, litigation, ownership, and property condition.
Reserve Requirements Are Increasing
For applications on or after January 4, 2027, minimum reserves for capital expenditures and deferred maintenance increase from 10% to 15% of annual budgeted assessment income.
When a reserve study is used, lenders will also look at whether the HOA budget reflects the highest recommended reserve allocation.
Why does this matter? An HOA’s financial planning and reserve funding can directly affect whether a condo project qualifies for conventional financing.
Insurance Matters
Insurance continues to play an important role in condo financing. Lenders are paying close attention to master insurance coverage, deductibles, roof coverage, and individual HO-6 policies.
💡 WHAT IF A CONDO DOESN’T MEET CONVENTIONAL GUIDELINES?
A condo that doesn’t meet traditional Fannie Mae or Freddie Mac requirements isn’t necessarily unfinanceable. Depending on the borrower and property, Non-QM options may include:
• Bank Statement Loans — Qualify using personal or business deposits.
• DSCR Loans — Designed primarily for investors and based on the property’s rental income.
• Asset Depletion Loans — Use qualifying liquid assets and investments to help determine income.
• Non-Warrantable Condo Financing — An alternative when a project doesn’t meet conventional guidelines.
The best option depends on the borrower, property, and condo project, making an early conversation with a knowledgeable lender especially valuable.
🏠 THE BOTTOM LINE: GET AHEAD OF THE REVIEW
Our biggest recommendation is simple:
Don’t wait until you’re under contract to find out whether a condo project can be financed.
For Sellers & Listing Agents: Gather the condo questionnaire, master insurance documentation, financial information, and other project details before listing whenever possible.
For Buyers & Buyer’s Agents: Get the lender involved early. Ask whether the condo project has already been reviewed and, when possible, have the project evaluated before submitting an offer. Buyers should also be fully prequalified before beginning their condo search.
A proactive review can uncover potential financing issues before an offer is accepted, helping protect both the buyer and seller and creating a smoother path to closing.
💬 HAVE QUESTIONS ABOUT CONDO FINANCING?
Whether you’re buying, selling, or representing a client, Arbor Home Loans is here to help.
Questions about a specific condo project, HOA, insurance requirements, or financing options? Reach out to Arbor Home Loans before you make your next move. We’re happy to review the situation, explain the requirements, and help you understand your options.
Kelly Tolson
NMLS# 664230
252.619.9037
ktolson@arborhl.com
Kathie Nesbitt
NMLS# 463357
252.489.3604
knesbitt@arborhl.com
