Why is buying a condo in Chicago harder now? Fannie Mae tightened its condo rules. Many established buildings now get a fuller lender review, and for loan applications dated January 4, 2027 or later, many buildings must budget at least 15% of assessment income for reserves, up from 10%.
Fannie Mae announced these changes in Lender Letter LL-2026-03. They sound technical, but they can decide whether you get your loan. When you buy a condo, the lender is not only approving you. The lender is also approving the building.
You can have great credit. Strong income. Money in the bank. A solid pre-approval. Everything looks fine. Then the lender reviews the condo association’s budget, reserves, insurance, repairs, delinquencies, and lawsuits, and says no.
Many Chicago condo associations have kept monthly assessments low by saving very little for future repairs. Under the tighter rules, more of those buildings may fail lender review. When a building does not meet Fannie Mae or Freddie Mac standards, the condo is considered non-warrantable, and your loan options shrink. So even if you qualify personally, the building may not.
This matters a lot in Chicago, especially if you are buying in an older lakefront high-rise, a vintage walk-up, a small self-managed condo building, or a building with major repairs coming up.
Here is what changed, what non-warrantable means, what can make a condo building fail lender review, and what to check before your earnest money is at risk.
A warrantable condo is a condo in a building that meets Fannie Mae or Freddie Mac guidelines. That matters because most standard conventional loans are sold to Fannie Mae or Freddie Mac after closing. Before that can happen, the building has to meet their rules.
If the building meets the rules, buyers can usually use standard conventional financing, including lower down payment options and more competitive rates. If the building does not meet the rules, the condo may be considered non-warrantable.
That does not necessarily mean the condo is bad. It means the building has a financing problem.
Some agents use the word “blacklisted,” especially when a building appears as unavailable in Fannie Mae’s condo project system. But the more accurate point is this: if the building is not eligible for standard conventional financing, your buyer pool becomes smaller, your loan options become more limited, and the risk goes up.
In plain English: You may be able to buy the condo, but not with the loan you expected.
Chicago is a condo city. We have vintage walk-ups, courtyard buildings, small self-managed associations, older lakefront high-rises, mixed-use buildings with retail below, and buildings that are 50, 80, or even 100 years old.
That is part of what makes Chicago housing so interesting. But it also means the building matters as much as the unit.
A pretty kitchen does not fix weak reserves. A lake view does not fix an open life-safety issue. A great price does not help if the lender will not finance the building. And a renovated unit in a weak building is still a weak-building purchase.
I see this come up most often in two very different types of buildings:
The issues look different, but the result can be the same: the lender takes a close look at the building and decides it does not qualify.
Reserves are one of the biggest changes buyers need to know about. A reserve fund is the association’s savings account for major future repairs: roof replacement, elevators, boilers, masonry, plumbing risers, facade work, and other big-ticket building expenses.
For years, Fannie Mae generally required a condo association budget to set aside at least 10% of annual assessment income for reserves. Starting with loan applications dated January 4, 2027, that minimum reserve contribution rises to 15% for many condo buildings.
That is a big deal in Chicago. Many associations have kept monthly assessments lower by saving very little and using special assessments when big repairs come up. That may have worked for the owners. But lenders are now looking harder at whether the building is actually saving enough.
Here is the basic timeline:
Change | Timing |
|---|---|
More established condo buildings now receive a fuller review because the Limited Review process has been retired for certain established condo projects | August 3, 2026 |
If a building relies on a reserve study, the budget has to follow the required reserve-study standards instead of using a weaker funding approach | August 3, 2026 |
Minimum reserve contribution rises from 10% to 15% of annual budgeted assessment income | Loan applications dated on or after January 4, 2027 |
This does not mean every Chicago condo building will suddenly become impossible to finance. But it does mean buyers, agents, lenders, and attorneys need to pay closer attention to the association budget. Especially if the building has low reserves, aging systems, or a history of special assessments.
Chicago’s North Side has thousands of small condo buildings with three, four, six, or eight units. Many of them are self-managed. Many have kept assessments relatively low for years.
That can sound great when you are shopping. A low monthly HOA fee makes the payment look better. But sometimes low assessments simply mean the building is not saving enough.
In smaller buildings, owners often deal with repairs by splitting the cost when something happens. The roof needs work? Special assessment. The back porch needs repairs? Special assessment. Masonry needs attention? Special assessment.
That setup can work for years, until a lender asks whether the building has enough reserves and whether the budget meets the current guidelines.
Some small buildings may qualify for limited exceptions or a waiver of full project review depending on the building and loan type. But do not assume that just because a building is small, it is automatically fine.
Your lender needs to confirm how the building will be reviewed. And your attorney needs to review the condo documents before your deadlines pass.
Older lakefront high-rises have a different problem. In Lakeview, Edgewater, Uptown, the Gold Coast, and along Lake Shore Drive or Sheridan Road, you will see buildings where a two-bedroom condo may have assessments of $1,000 or more per month.
Buyers sometimes assume that a high assessment means the building must be financially healthy. Not necessarily.
A high monthly assessment may be paying for door staff, heat, air conditioning, maintenance, insurance, management, utilities, elevators, amenities, and daily operations. That does not automatically mean the building is saving enough for future repairs.
A high assessment is not the same thing as a healthy reserve fund. The lender is going to look at the actual reserve line in the budget.
For more on how assessments work, see my guide to Chicago condo HOA fees by neighborhood.
Before you fall in love with the lake view, the kitchen, or the balcony, check the building. Here are six red flags that can create financing problems.
If a building has failed a required safety inspection or has open life-safety issues, conventional financing can become a problem. In Chicago, this often comes up in older high-rises that are subject to life-safety requirements, especially buildings built before 1975.
One open safety issue in a large building can affect financing for every buyer in that building. That is why you want to know about building-level issues early, not three weeks into underwriting.
Big repairs are not automatically a problem. The problem is when the building needs major work and does not have the money lined up to pay for it.
In Chicago high-rises, major projects can involve plumbing risers, elevators, facade work, balconies, roofs, boilers, or garage repairs. If the association has a large special assessment tied to critical repairs, the lender may want to know whether the project is fully funded, whether the work is completed, and whether there are unresolved safety issues.
A special assessment is not always a deal-breaker. An unfunded repair problem can be.
Chicago weather is hard on buildings. Freeze-thaw cycles, old masonry, rusted lintels, leaking roofs, balcony issues, and water intrusion can become serious over time.
In walk-ups, I often look for brick, lintel, roof, and porch issues. In high-rises, I am paying attention to concrete, balconies, facade repairs, plumbing, and water intrusion.
If the meeting minutes show emergency repairs, repeated leaks, unresolved violations, or major structural concerns, your lender may ask a lot more questions. And they should.
Under Fannie Mae’s full review standards, too many delinquent owners can cause a building to fail. The current guideline generally allows no more than 15% of the total units to be 60 days or more behind on regular assessment payments.
In a large building, that number can creep up if assessments rise sharply. In a small building, the math is brutal. In a six-unit building, one owner behind on assessments is already more than 15% of the building.
That is why delinquency matters so much. When you buy a condo, your loan can depend on your neighbors paying their assessments.
Mixed-use buildings can be great. Living above a coffee shop, grocery store, restaurant, or retail space can be very convenient.
But conventional lenders look at how much of the building is commercial versus residential. Fannie Mae generally limits nonresidential or commercial space to 35% of the project’s total square footage.
If the commercial space is too large, the building may not qualify for standard conventional financing. This is especially important in Chicago because so many desirable condo buildings sit above retail corridors.
Not every lawsuit is a problem. If the association is suing an owner for unpaid assessments, that may be treated differently.
But if the lawsuit involves safety, structural problems, habitability, defective work, water damage inside the walls, or major building issues, the lender may say no.
In plain English: if the building is in a lawsuit over something serious, financing can get complicated fast.
If the building is non-warrantable, your financing options change. For many buyers, this is where the deal falls apart.
Sometimes there is a financing solution. Sometimes there is not. And sometimes the solution exists, but the payment no longer makes sense.
The rate difference can be significant. As an example, Freddie Mac’s Primary Mortgage Market Survey reported the 30-year fixed rate at 6.76% on September 10, 2026.
On a $400,000 loan, here is how the monthly principal and interest payment changes if the rate is higher.
Rate on a $400,000 Loan | Monthly Principal and Interest | Extra Per Month |
|---|---|---|
6.76% | About $2,597 | None |
7.76% | About $2,868 | About $271 |
8.26% | About $3,008 | About $411 |
9.26% | About $3,294 | About $697 |
These figures are estimates for illustration only and do not include taxes, insurance, assessments, mortgage insurance, or other loan costs.
The point is simple: even if the lender can still make the loan work, the monthly payment may change enough to affect whether the condo still makes sense.
Sometimes, yes. If you are paying cash, or you have a large down payment and a lender who can handle the building, a non-warrantable condo may sell at a discount.
That is because the buyer pool is smaller. Many buyers need standard conventional financing. If they cannot use it, they cannot buy the unit. That can give a qualified cash buyer or portfolio-loan buyer more leverage.
But this only works if you understand the risk. A discount is not helpful if a major special assessment is coming. A low price is not helpful if the building has safety problems no one has solved. And a good deal today can become a resale problem later if the association never fixes the issue.
Most buyers focus on one question: Can I buy this condo? But you also need to ask: Can the next buyer buy it from me? That matters.
If the building remains non-warrantable when you sell, your future buyer pool may be much smaller. You may not be able to sell to first-time buyers using low down payment programs. You may not be able to sell to buyers using standard conventional financing.
That means fewer buyers, longer market time, and more price pressure. Cash buyers and investors know when they have leverage.
So even if you can buy the condo now, think about resale before you write the offer. The building’s problem becomes your problem when it is time to sell.
Before you fall in love with the unit, ask about the building.
You may not get every answer before writing an offer. But if there are obvious red flags, you want to know early. And once you are under contract, you need your lender, attorney, and agent looking at the building quickly.
Chicago buyers have protections in the standard contract, but deadlines matter. Chicago-area home sales commonly use the Multi-Board Residential Real Estate Contract, which often includes an attorney review period, condo document review period, and mortgage contingency.
Those deadlines can vary or be changed in your specific contract, so your attorney should confirm your actual dates. During those windows, review the building carefully.
Section 22.1 of the Illinois Condominium Property Act requires the seller to provide important condo association information, including the declaration, bylaws, rules, current reserve balance, planned capital expenses, financial statements, pending lawsuits, judgments, and insurance details. This is one of the first places to look for red flags.
Look at the reserve line. Look at the operating account. Look at whether the building is saving enough.
For 2026, the 10% reserve line is still important. For applications dated on or after January 4, 2027, the 15% requirement becomes even more important.
The condo questionnaire asks the association about reserves, delinquencies, lawsuits, insurance, commercial space, ownership, and building issues. This is often where financing problems become obvious. Your lender needs this early.
Meeting minutes are where you often find the real story. Upcoming special assessments. Leaks. Roof problems. Elevator issues. Life-safety work. Owner complaints. Contractor disputes.
If the building has a problem, it often shows up in the minutes before it shows up anywhere else.
A reserve study estimates the building’s future repair and replacement needs. It may cover roofs, elevators, boilers, masonry, balconies, plumbing, garages, and other major components.
The question is not just whether the study exists. The question is whether the association is actually funding the reserves needed to keep up with the building.
The goal is not to avoid every building with a problem. The goal is to know what you are buying before you are stuck.
If the condo building does not pass review, your attorney may be able to use your contract protections to cancel within the proper deadlines and protect your earnest money. But timing matters. If the problem is discovered after your deadlines pass, your options may be much more limited.
That is why I want buyers to check the building early. Do not wait until the week before closing to find out the association has a financing problem.
For more on the full buying process, see my guide to buying a home in Chicago and my free Chicago Buyer’s Course.
A non-warrantable condo is a condo in a building that does not meet Fannie Mae or Freddie Mac requirements for standard conventional financing. The issue is usually with the building or association, not the buyer personally.
Yes. A lender has to approve both the buyer and the condo building. Even if you qualify as a borrower, the lender may deny the loan if the building has weak reserves, open safety issues, serious litigation, major unfunded repairs, high delinquency, or other problems.
The 15% minimum reserve contribution requirement applies to many Fannie Mae condo loan applications dated on or after January 4, 2027. Before that, the standard reserve contribution has generally been 10% of annual budgeted assessment income, though other 2026 condo review changes already took effect on August 3, 2026.
Sometimes. You may need a portfolio lender or non-QM lender instead of a standard conventional loan. These loans often require more money down and may come with a higher interest rate. Some buyers use cash if the building has significant financing issues.
It depends on the lender, the buyer, and the building, but non-warrantable condo financing often requires 20% to 30% down. Some buildings may be difficult to finance at any down payment level if the issues are serious enough.
Common issues include weak reserves, major repairs without secured funding, open safety or inspection problems, structural concerns, water intrusion, too many owners behind on assessments, too much commercial space, or serious litigation involving the condo association.
Not necessarily. A high HOA fee may cover door staff, utilities, maintenance, insurance, elevators, amenities, and daily operations. It does not automatically mean the association has strong reserves. You need to review the budget, balance sheet, reserve fund, and upcoming repair needs.
Not automatically. Small buildings may qualify for certain review exceptions depending on the loan and project, but they can also have thin reserves, informal management, special assessments, or one delinquent owner who creates a larger percentage problem. Small does not automatically mean safer.
Sometimes, but only for the right buyer. If you are paying cash or have a lender who can finance the building, a non-warrantable condo may sell at a discount because the buyer pool is smaller. But you need to understand the reason it is non-warrantable, the future repair risk, and the resale problem before treating it as a deal.
Your lender determines warrantability by reviewing the condo questionnaire, budget, reserves, insurance, ownership, delinquencies, litigation, and other association documents. Your attorney and agent should also review the 22.1 disclosure, financials, meeting minutes, and reserve study during the contract review period.
If you are buying a Chicago condo, do not wait until underwriting to find out the building has a problem. Have the building reviewed early, ideally during attorney review and condo document review, while your earnest money protections still matter.
I help buyers look past the kitchen and the photos and understand the building they are actually buying into. Because with condos, you are not just buying the unit. You are buying a share of the association, the budget, the reserves, the repairs, and the decisions that came before you.
Start with my Chicago condo specialist page, or take my free Chicago Buyer’s Course.
You can also schedule a complimentary and confidential consultation here, or call or text me directly at 773.719.0989.
This post is for general informational purposes only and is not mortgage, legal, financial, tax, or lending advice. Condo financing guidelines can change, and individual lenders may apply overlays or additional requirements. Always confirm loan eligibility directly with your lender and review condo documents with your attorney before making a real estate decision.
Dee Savic is a Realtor with Baird & Warner, a 24+ year real estate professional, and a 27+ year Chicago resident with 300+ closed transactions. She specializes in helping buyers, sellers, and relocation clients across Chicago’s North Side, including Lakeview, Lincoln Park, Lincoln Square, Ravenswood, Andersonville, Uptown, Edgewater, and the Gold Coast.
Dee Savic
Realtor® | Baird & Warner
4553 N. Lincoln Ave, Chicago, IL 60625
773.719.0989
[email protected]
deesavic.com
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