2026 Condo Rule Changes: What Brokers Need to Know

The 2026 condo rule changes loosened some requirements and tightened others, but the biggest shift is moving from a more LTV-based approach to a full look at the HOA’s financial health. 

The changes arrive in three waves. To begin with, insurance changes took effect July 1, 2026. Then limited review went away August 3, 2026. Finally, the reserve contribution increase follows on January 1, 2027. Two of the three are already in effect. 

Underneath all of it is one shift. Specifically, condo eligibility is moving from a more LTV-based approach to a full look at the HOA’s financial health. Previously, a 10% down owner-occupied primary transaction took the shorter path. However, it does not.

Full underwriting of all HOA financials is required regardless of LTV. In short, this guide covers each change, what it means on a condo file, and what to check before your next one.

The 2026 Condo Rule Changes: Before and After  

Limited Review Goes Away (August 3, 2026) 

Previously, limited review was the shorter path. It ran with 10% down on owner-occupied primary transactions, and no financials were required. However, that path is gone. Instead, full review applies regardless of LTV.

What Full Review Changes 

Specifically, the biggest difference is review of the budget. Underwriting now covers all HOA financials, regardless of LTV.

The Practical Effect 

As a result, three things follow: more documentation, more scrutiny, and more deals delayed or denied.

Reserve Requirements (January 1, 2027) 

In addition, the annual budget requirement increases. Specifically, reserve contribution moves from 10% to 15% effective January 1, 2027, a 50% increase in required annual reserve funding. 

The Impact on Associations 

As a result, expect increased HOA dues pressure and less flexibility in budgets. Practically speaking, half of commonly allowable annual dues increases may be consumed by increased reserves, since many HOAs are capped at 10% without community-wide approval. 

Short-term risk rises if associations use assessments to shore up budget issues, and long-term risk drops if reserves become stronger.

Review the Annual Budget, Not the Accumulated Balance 

Focus on the current year’s budgeted allocation. The common assumption is that reserves analysis looks at what has accumulated In fact, it is not. The analysis looks at the current year’s budgeted allocation, not accumulation, except when using reserve studies. So look at the annual budget, not the accumulated balance.

Reserve Studies 

The 15% budget method does not require a reserve study.

What a Reserve Study Is 

To begin with, a third-party engineering firm reviews the property, identifies maintenance needed now and over the next 10 years, and estimates how much it will cost. Overall, the study helps determine whether the HOA has enough money or what it needs to stay on track

The Rules When One Is Used 

Specifically, the project’s budget must contain the fully funded or highest reserve allocation. Also, the highest recommended reserve allocation cannot be based on the baseline funding method, an option that allows the reserve cash balance to approach zero. Before, associations could use lower funding and baseline.

Now the highest funding is required and baseline is not. So, obtain condo documentation early and understand which reserve path applies.

Investor Concentration 

This is a big improvement for investor condo buyers. Previously, the requirement was a 50% cap on non-owner occupants in a project for investor purchases. However, that cap no longer applies.

It helps investor-heavy projects. Still, it does not fix weak financials. Underwriting will look at the overall financial health of the community instead of the investor concentration alone. Single entity ownership is not changing. 

Of course, investor concentration removed does not equal automatic approval. HOA financials still matter. For brokers working investor-heavy projects, that distinction is the whole story. 

Insurance (July 1, 2026) 

Meanwhile, carrier restrictions and rising costs remain a major driver of condo eligibility.

Roof Coverage

Roofs must carry insurance, but not on a replacement cost basis.

Inflation Guard and Per Unit Deductibles 

• Similarly, inflation guard no longer applies.
• Previously, per unit deductibles were 5% and geographic specific. They are now capped at $50,000 max per unit.
• Additionally, coverage documentation options have expanded.

As a result, older roofs become more insurable, more deals qualify, and the risk of ineligibility drops.

HO-6 

A borrower must have a unit owners property insurance policy when the master property insurance policy does not fully cover the unit’s interior or improvements, or includes a per-unit deductible. 

Specifically, the policy must provide enough coverage to meet the greater of: 

• The amount needed to restore any uncovered interior portions or improvements after a loss, or 

• The amount of the per-unit deductible, if one applies under the master policy. 

In addition, HO-6 is becoming more common. Therefore, make sure teams understand what the master policy covers and where individual coverage may be needed.

The Insurance Action Item 

Conduct a full review with the association’s broker as soon as possible. Encourage teams to obtain matching all-risk or master coverage early. Roof flexibility helps association coverage and cost. Still, coverage gaps kill deals, and complexity is higher.

The Good News and the Challenges 

More flexible in some areas, but more demanding overall. 

Good news: investor concentration removed, roof flexibility added, insurance documentation expanded, inflation guard removed. 

Challenges: higher reserves, full review required, insurance still expensive, more scrutiny. 

Some requirements loosened, but the 2026 condo rule changes leave projects needing to be better prepared.

The 2026 Condo Timeline 

When a Project Cannot Qualify 

Most buyers cannot get financing. Only cash, private, and Non-QM (non-qualified mortgage) financing remain, which suppresses values. The effect compounds. As a result, sales fall apart, listings sit, and prices drop. Even so, American Heritage Lending can finance owner occupied and non owner occupied non-warrantable condos. 

Condo or Townhome 

A condo is stacked. The owner owns the interior walls only. The HOA owns the walls and common elements. 

A townhome, by comparison, is an attached PUD. It is not stacked, it is side by side. The owner owns the dirt to the roof. The association owns the common areas. 

Condo eligibility rules apply to condo projects, not attached PUD or townhome ownership structures. 

What to Check on Your Next Condo File 

The 2026 condo rule changes shift most of the work to the front of the file.

• Obtain condo documentation early.
• Understand which reserve path applies. The 15% budget method and the reserve study path carry different requirements.
• Review the annual budget, not the accumulated balance.
• Conduct a full review with the association’s broker as soon as possible.
• Confirm what the master policy covers and where individual coverage may be needed.
• Do not read removed investor concentration as automatic approval. HOA financials still matter.

Confirm the ownership structure. Condo eligibility rules do not apply to attached PUD or townhome structures.

The Broker Takeaway 

Some requirements loosened, but projects must be better prepared. That is the sentence to carry into every condo conversation this year, and it is the throughline of all the 2026 condo rule changes. 

Ultimately, the biggest shift is moving from a more LTV-based approach to a full look at the HOA’s financial health. Underwriting now covers all HOA financials regardless of LTV, and the biggest difference is review of the budget. 

So obtain condo documentation early and understand which reserve path applies. After all, the projects that cannot meet the new requirements are the ones where most buyers cannot get financing.

Partner with American Heritage Lending

When a condo project cannot qualify, only cash, private, and Non-QM financing remain. That is a narrow set of options, and Non-QM is the one that keeps the deal on a familiar path. American Heritage Lending’s TPO division can finance owner occupied and non owner occupied non-warrantable condos through our Non-QM product suite.

Run scenarios through Loan Pricer at client.ahlend.com/quickpricer and submit through Galaxy Portal at client.ahlend.com. Have a condo scenario you want to talk through? Contact your Account Executive or call the AHL TPO team at (855) 340-9892. 

Not yet a partner? Apply to become an approved broker at ahlendtpo.com and gain access to the full AHL Non-QM product suite.