Introduction
In March 2026, Fannie Mae announced significant changes to underwriting guidelines that will directly affect how Michigan condominium associations are evaluated for conventional mortgage financing. (Download the new changes here.) These updates, which primarily address insurance and financial standards, are intended to address escalating insurance costs and coverage challenges while placing greater emphasis on long term financial stability. For Michigan condominium associations, the changes may help to ease insurance woes, while heightening financial responsibilities.
While insurance requirements are becoming more flexible, financial discipline is no longer optional. Associations that are well funded, well documented, and proactive in long term planning will be better positioned to support unit sales and refinancing, while underfunded or poorly documented projects may face increasing barriers for lending.
Fannie Mae (Federal National Mortgage Association) along with Freddie Mac (Federal Home Loan Mortgage Corporation) are government-sponsored entities that purchase and securitize mortgages – these mortgages are commonly known as “conventional mortgages”. Conventional mortgages make up over 60% of the overall mortgage market. Both Fannie Mae and Freddie Mac also purchase FHA-insured loans.
Reserve Funding (Effective January 4, 2027)
A consequential change for many Michigan condominium associations relates to reserve funding. Minimum annual reserve contributions will increase from 10% to 15% of annual budgeted assessments for applicable loans. If an Association is not budgeting and contributing 15% each year and is instead relying upon a reserve study to confirm adequate reserve funding, the annual budgets will have to reflect the highest recommended reserve allocation identified in those studies.
These changes are especially significant when viewed through the lens of the Michigan Condominium Act. An association may technically comply with the Condominium Act yet still be deemed ineligible for conventional financing if reserves are underfunded or long term planning is insufficient. Boards that delay reserve funding or rely heavily on additional assessments may expose co-owners to reduced marketability and financing challenges.
These changes mean that many associations will need to reassess long term capital planning, update reserve studies, or adjust assessment levels to remain eligible for conventional financing.
Insurance Changes (Effective Immediately)
Insurance requirements have been revised to provide greater flexibility which, in some instances, may result in cost relief through lower premiums. While community roofs must still be insured, Fannie Mae now allows roofs to be insured with actual cash value coverage rather than replacement cost coverage. The difference is that actual cash value coverage accounts for depreciation and pays the roof’s current value with age and wear taken into consideration, while replacement cost coverage covers the cost of replacing the roof without deducting for age or wear. Although actual cash value is now acceptable for roofs, remaining structures still must have full replacement cost.
The guidelines further permit an association’s master policy to include per unit deductibles of up to fifty thousand dollars and eliminate the requirement for an inflation guard endorsement. If an association chooses a policy with any per unit deductible, co-owners will be required to maintain their own homeowners insurance (typically HO-6) which covers the per unit deductible amount. When co-owners are required to carry property insurance, it must be on a replacement cost basis.
Practical Considerations
For Michigan condominium boards and property managers, these updates underscore the importance of proactive planning and disciplined financial management. Associations should ensure their 2027 budgets reflect the 15% reserve funding threshold and adopt a thoughtful, forward-looking approach to both reserves and insurance. Those that do not may find fewer lending options, lower marketability, and dwindling co-owner confidence. Associations should also confer with their insurance agents to determine where there are any available cost-saving opportunities.
