A Practical Guide for Minnesota Condo and HOA Boards

On March 18, 2026, Fannie Mae issued a major update to its project standards and insurance requirements for certain residential properties and project developments. These changes affect how lenders evaluate reserve funding, insurance, deductibles, and project eligibility.

For Minnesota communities, the key point is this:

Fannie Mae financing standards are not the same as compliance with MCIOA or your governing documents.

A project may satisfy lender requirements and still have legal issues under Minnesota law.

 

At a Glance

Here are the biggest changes:

  • Limited Review is being eliminated for condo projects.
  • Waiver of Project Review is expanded to some projects with 10 or fewer units.
  • Investor concentration limits are being retired.
  • Reserve expectations increase from 10% to 15% of annual budgeted assessment income.
  • Reserve studies, when used, must support the highest recommended funding amount, and baseline funding is no longer allowed.
  • Roofs no longer have to be insured at replacement cost under Fannie Mae’s insurance rules.
  • Inflation guard coverage is no longer required for project master policies.
  • Per-unit master-policy deductibles are capped at $50,000 per unit.
  • Owners may need HO-6 or other unit-owner coverage if the master policy leaves interior gaps or includes a per-unit deductible.

 

What Types of Communities Are Most Affected?

Most affected

  • Condominiums
  • Attached townhome communities with shared master insurance
  • Co-ops and other project developments reviewed under Fannie Mae’s project standards

Possibly affected

  • Planned communities with project-style insurance structures
  • Smaller attached communities seeking financing approval

Less affected

  • Detached single-family HOAs where owners insure their own homes and the association insures only common areas

That distinction matters. Many people use “HOA” as a catch-all, but these changes are aimed primarily at project developments, especially condominiums.

 

What Changed?

1. Project Review Changes
 
Limited Review is going away
Fannie Mae is retiring the Limited Review process. Established projects that previously qualified for Limited Review will now need to be reviewed through Full Review or, if eligible, Waiver of Project Review. This becomes mandatory for loan applications dated on or after August 3, 2026.

Waiver review is expanded for small projects
Fannie Mae expanded the Waiver of Project Review to include certain new and established projects with 10 or fewer units. For projects with 5 to 10 units, the project must not be part of a master association or larger development.

Investor concentration limits are retired
Fannie Mae is eliminating the prior 50% investment-property concentration limit in established projects reviewed under Full Review for investor loans.

Florida-specific PERS requirement removed
The special requirement that certain new Florida attached condo projects go through PERS is also being retired.

Practical takeaway

Expect:

  • more lender questionnaires,
  • more requests for budgets, reserve information, and insurance documents,
  • and more administrative work during sales and refinances.

2. Reserve Funding Changes
 
Minimum reserve expectation increases
Fannie Mae is increasing the reserve allocation requirement for capital expenditures and deferred maintenance from 10% to 15% of annual budgeted assessment income. This applies when using the Full Review process for loan applications dated on or after January 4, 2027.

Reserve studies now matter more
If a lender relies on a reserve study to show adequacy, the project budget must include the highest recommended reserve allocation in the study. Fannie Mae also states that lenders may no longer rely on the baseline funding method.

Practical takeaway
Even though Fannie Mae did not create a blanket reserve-study requirement, these changes make reserve studies much more important in practice.

3. Insurance Changes for Project Master Policies
 
Replacement cost documentation is more flexible
Fannie Mae still requires master policy coverage equal to at least 100% of the estimated replacement cost value of project improvements, including common elements and residential structures. But the lender can now rely on a broader range of evidence to verify that coverage, including:

  • guaranteed replacement cost coverage,
  • extended replacement cost coverage,
  • insurer estimates,
  • insurance appraisals, or
  • statements from qualified professionals.

Roofs do not need replacement cost treatment under Fannie Mae
Fannie Mae now says the master property policy must provide replacement cost coverage except for roofs. Roofs still must be insured, but they do not have to be insured on a replacement cost basis.

Inflation guard is no longer required
Fannie Mae also retired the requirement that project developments carry inflation guard coverage.

Practical takeaway
This gives associations more flexibility in difficult insurance markets, but it does not automatically mean the association is complying with Minnesota law or its declaration.

4. Deductible Changes
 
New $50,000 per-unit cap
Fannie Mae updated the rules for per-unit deductibles under master policies. The new maximum allowable per-unit deductible for required property insurance perils is $50,000 per unit. Fannie Mae also states that all other deductible requirements remain unchanged.

Important clarification: this likely does not replace the old 5% rule entirely
Before March 18, 2026, Fannie Mae generally capped master-policy deductibles at 5% of the master policy coverage amount, while allowing certain per-unit deductible structures in more limited circumstances.

The new lender letter appears to replace that older framework only for per-unit deductible structures. It does not appear to eliminate the separate 5% cap for ordinary per-occurrence deductibles, because Fannie Mae specifically says it is updating the requirements related to per-unit deductibles and that all other deductible requirements remain unchanged.

Practical takeaway
Boards should be careful not to assume that every deductible under every master policy is now judged solely by the $50,000 number.

5. Unit Owner Insurance Changes
 
Fannie Mae now requires a borrower to carry a unit-owner policy when:

  • part of the interior or improvements are not covered by the master policy, or
  • the master policy includes a per-unit deductible.

The minimum amount of coverage must be at least the greater of:

  • the amount needed to restore any uninsured interior portion of the unit, or
  • the amount of the per-unit deductible.

Fannie Mae also updated the deductible rules for unit-owner policies so that the maximum allowable deductible is the greater of:

  • 5% of the coverage amount, or
  • $2,500.

Practical takeaway
This puts more pressure on owners to carry meaningful HO-6 or similar coverage, especially where the association has a high deductible or limited interior coverage.

 

What Did Not Change?

This part is just as important as what changed.

Fannie Mae did not create a blanket reserve-study requirement
A professional reserve study is still not expressly required in every case. But when reserve adequacy is challenged, it may be the only realistic way to justify lower reserve funding.

Fannie Mae did not override MCIOA
These are financing and underwriting standards. They do not replace the Minnesota Common Interest Ownership Act.

Fannie Mae did not override your declaration
Even if a policy is acceptable for financing purposes, the association still has to comply with its own governing documents.

The $50,000 figure likely did not replace the entire deductible framework
It appears to replace the special rules for per-unit deductibles, not the broader 5% cap for all per-occurrence deductibles.

 

Minnesota-Specific Cautions

1. Financeable does not always mean compliant
 
This is the main Minnesota takeaway.

A policy structure that satisfies Fannie Mae may still create issues under:

  • MCIOA, and
  • the association’s declaration and bylaws.

2. Roof coverage is the clearest example
 
Fannie Mae now allows roofs to be insured without full replacement cost treatment.

That does not automatically mean a Minnesota condominium can do the same. Depending on the community’s governing documents and the association’s statutory obligations, broader replacement cost coverage may still be required for the association’s insured property.

Practical takeaway
A board should not reduce roof coverage just because Fannie Mae would allow it.

3. Deductible allocation is still a Minnesota law and document issue
 
Fannie Mae’s new deductible rules address whether a project is acceptable from a financing perspective. They do not answer a separate and often more important question:

Who actually pays the deductible after a loss?

That question depends on:

  • the declaration,
  • insurance allocation language,
  • any deductible-assessment authority,
  • and the facts of the claim.

Many older Minnesota condo documents do not clearly address modern high-deductible insurance programs.

Practical takeaway
A deductible structure may be financeable under Fannie Mae and still create serious owner disputes inside the association.

4. The 15% reserve standard is not the same as Minnesota statutory law
 
Minnesota law does not simply require every association to contribute 15% of annual income to reserves.

That 15% threshold is a Fannie Mae financing standard, not a standalone MCIOA mandate. But it may still affect:

  • resale marketability,
  • refinancing,
  • and lender approval of purchases.

Practical takeaway
Even if a board is not violating Minnesota law, low reserve funding can still become a real problem for owners trying to finance units.

 

What Boards and Managers Should Do Now

1. Review reserve funding

  • Are reserves currently below 15% of annual budgeted assessment income?
  • Is there a current reserve study?
  • Does the reserve study support actual funding needs?

2. Review the insurance program

  • What is the deductible structure?
  • Is the deductible per occurrence, per unit, or both?
  • Does the association insure roofs and other common elements in a manner consistent with both lender expectations and the governing documents?

3. Review governing documents

  • Who pays the deductible?
  • Does the declaration allow deductible assessments to owners?
  • Are the insurance provisions outdated or internally inconsistent?

4. Review owner insurance expectations

  • Do owners need stronger HO-6 coverage?
  • Does the association communicate interior-coverage gaps clearly?
  • Are owners aware of deductible exposure?

5. Prepare for more lender questionnaires

  • Budgets
  • Reserve studies
  • Insurance summaries
  • and project eligibility information should be organized and accessible.

 

Questions We Are Already Getting

Is a professional reserve study now required?
Not across the board. But in practice, it is becoming much more important, especially if reserves are below Fannie Mae’s expectations.

Does the new $50,000 deductible cap replace the old 5% rule?
Probably not entirely. The better reading is that it replaces the old standard for per-unit deductibles only, while other deductible requirements remain in place.

Does this apply to detached single-family HOAs?
Usually much less so. These changes primarily affect project developments, especially condominiums and attached communities with shared master insurance.

If Fannie Mae allows less than full replacement cost coverage for roofs, can our association reduce roof coverage?
Not necessarily. Minnesota law and the governing documents may still require broader coverage.

Can the association assess the deductible back to an owner?
Maybe. That depends on the declaration, the claim, and the association’s legal authority under Minnesota law.

 

Final Takeaway

These updates matter, especially for condominiums and attached communities. But for Minnesota boards, the most important point is still the simplest one:

Do not confuse Fannie Mae eligibility with legal compliance.

A project may satisfy lender standards and still have problems under MCIOA or the declaration. That is especially true for:

  • roof coverage,
  • deductible allocation,
  • and the division of insurance responsibility between the association and owners.

Boards that review these issues now will be in a much better position when the next sale, refinance, or insurance claim arises.

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