Keller Williams Greater Seattle, Ben Kakimoto, Seattle Condo Agent

Fannie Mae revises condo guidelines

By on February 12, 2009 in Feature, Mortgage, Real Estate with 42 Comments

DISCLAIMER: This information is presented to provide an overview of Fannie Mae’s condo guideline changes. For specific information and questions, please consult with your mortgage loan officer.

Recently, TSCB noted two new mortgage fees implemented by Fannie Mae affecting condo buyers — a .75% condo add on fee and a 1.75% additional fee for investors — both applicable to loans with a loan-to-value rate greater than 75%.

Well, there’s more. Effective March 1, 2009, Fannie Mae is implementing condo guideline changes “in light of the current condo market and the need to mitigate risk on condo loans”. Some of these changes may affect a buyer’s ability to obtain conventional condo loans for new and established condos.

A condo project is “established” if 90% of the units have been sold, is complete and the HOA has been turned over to the owners. A condo project is “new” if less than 90% have been sold, is not completed, is subject to phasing or if the HOA has not been turned over to unit owners.

Overview of Fannie Mae condo guideline changes:

  • For new construction and newly converted condo developments, 70% of the units must be pre-sold (closed or under contract). This is being increased from 51%.
  • No more than 15% of a condo project units can be more than 30 days delinquent on HOA dues. This is an existing guideline that is now being applied to new condo projects. The calculation was also changed from being 15% of HOA fee payments to 15% of total units.
  • Fidelity insurance will be required for condos with 20 or more units, ensuring that homeowner association funds are protected. Presently, this requirement applies to new projects and is now being extended to include established condos.
  • A requirement that borrowers must now obtain a condo-owners insurance policy unless the master policy provides interior unit coverage; coverage may not be less than 20% of the assessed value. A condo-owners policy, known as an HO-6 policy, covers personal property, personal liability, and the physical unit from the studs and in. Many policies also include special assessment coverage or the option to include a special assessment coverage rider.
  • No more than 10% of a project can be owned by a single entity.
  • No more than 20% of a project can consist of non-residential space.
  • The homeowners association must have at least 10% of its budgeted income designated for replacement reserves and adequate funds budgeted for the insurance deductible.

According to a Fannie Mae, the guidelines can be modified for condo projects on a case-by-case basis. Therefore, these guidelines may not apply to all condo projects.

What effect will the changes have?

The revised guidelines may affect a buyer’s ability to obtain a conventional loan for either a new or established condo if the project does not conform. Most notably, it’ll affect new developments and it’s already having an impact on at least two new projects. Vulcan recently sent a letter to buyers at its Rollin Street Flats project in South Lake Union notifying buyers of the new 70% pre-sold guideline and extending closing until April 15th at the earliest.

As it stands, Vulcan may be unable to close any of the units at Rollin Street unless (1) they continue to extend closing until 70% of the units are under contract, (2) seek modification under a Fannie Mae expedited review process, (3) find a lender willing to hold the loans in their portfolio, or (4) convert the use of the building.

Ruby Condominiums in Eastlake is holding off closings until there are enough sales to qualify under the guidelines…that could be awhile. Ruby is FHA approved so that offers qualified buyers an alternative, though Ruby must have 25 sales under contract before it can begin closing FHA buyers. Its developer, Barrientos, is a major apartment developer as well, so reuse may be an option. In both cases, buyers are left in limbo.

The new guidelines may also apply to other recently completed and/or soon to be completed projects including Enso, Veer Lofts, Equinox, Alex, Duncan Place, Leona, Lakeview Residences, Brix, Eleven Eleven, The Danielle, The Dakota and Marselle — that is unless they’ve been approved for a lower rate under a case-by-case expedited review process. Quite frankly, though, I expect a few of these won’t end up as condos.

If there is a silver lining, it’s for sellers at established condo developments who’ll have reduced competition from new construction developments.

Statement from Vulcan:
Vulcan has informed our buyers of the new Fannie Mae and Freddie Mac regulations because Rollin Street is at a level of pre-sales that is under what is mandated by the new guidelines. As these guidelines affect the ability of our buyers to obtain financing and close on their purchases, we felt it was important to communicate these challenges as soon as possible. We are working to understand the new guidelines and how they will ultimately affect the property and our buyers. We will be communicating what we know about these changes and their impact in the next 2 to 3 weeks.

Veer and Enso are at a higher level of sales and pre-sales respectively and our goal is to continue to close units in those buildings as buyers come to the closing table.

Response from Williams Marketing (per comment below)
As of today [2/20/09], Ruby has partnered with a local lender (Seattle Mortgage) looking to actually lend money! They have committed to close homes now, ie, we are move-in ready with no pre-sale requirement. We are also working with other regional lenders for additional commitments to close homes with no presale requirements. Ruby on Eastlake is both FHA and VA approved, so buyers can take advantage of every financial opportunity to get into new home ownership.

Posting has been revised.

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About the Author

About the Author: Ben Kakimoto is a Seattle condo and urban real estate marketing & listing specialist. Contact Ben to learn more about the Seattle condo and loft real estate market or about buying or selling a Seattle area condo. Find Ben on Twitter and Facebook. .


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There Are 42 Brilliant Comments

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  1. Mark W says:

    * No more than 20% of a project can consist of non-residential space.

    Any idea what that means for hotel/condo towers?

    Seattle’s common 5 over 1’s already hit close to 17% with ground floor retail requirements. Are hallways, rec rooms, fitness rooms, etc., considered residential space on the residential 2-6 floors?

    Just curious.

  2. Ben Kakimoto says:

    Mark – great question. The bulletin only stated that they were adding “Projects where more than 20 percent of the total space is used for non-residential purposes” to the list of ineligible projects. My initial guess is that the 5/1’s are fine while the hotel/condo projects may be affected. I’ll try and get some clarification on this.

  3. Rick says:

    How does the outlook for the Marselle stand? I’m a early buyer and the closing date was set for June 20th… But the press on the units is next to none. I have a feeling that they may have a hard time selling the remaining units in this time frame.

  4. Ben Kakimoto says:

    Rick – the new guidelines will impact Marselle, what I don’t know yet is whether its being held to the 70% limit or whether they received a lower percentage waiver. Whatever percentage it is, they will need to have enough pre-sales (units under contract) to begin closing. Marselle is being marketed by Williams Marketing so I expect it’ll be similar to what’s going on at Ruby. Though, the one benefit that Marselle should have compared to Rollin or Ruby, is better price per square foot value for its closer-in location. Plus, it may have attracted a few of Moda buyers. I contacted the sales manager for a status update but haven’t received a response yet.

    My personal opinion, and it’s a guess, is that Ruby, Marselle and Rollin will convert usage. The market is just too weak to generate an adequate level of sales under the new guideline, not to mention the .75% add on mortgage fee. While FHA may help (even for Rollin if the stimulus bill passes), only a small percentage of units can be sold via FHA. Given the position lenders are in, I doubt any will carry the loans in their portfolio, either. So, that doesn’t leave many options.

    Back to Mark’s question about the 20% limit for non-residential space. I’ve questioned a number of condo and mortgage experts and the consensus is that it may impact the hotel / condo projects. Projects can apply for a waiver of the 20% limit. AVA, Heron or Candela could pursue a waiver but there are other, more immediate obstacles – lack of construction financing and market conditions. At least, we won’t see another hotel/condo project for awhile.

    There could be a short-term issue with resales at 2200, Madison Tower, Millennium Tower, Lincoln Square, Four Seasons, Bravern and Olive 8. Since this is a new guideline, I suspect that established projects — 2200, Madison Tower, Millennium Tower and Lincoln Square — don’t have waivers yet. Olive 8 tells me that they have through its preferred lender, Countrywide. If you’re buying a resale unit at Olive 8, you’ll pretty much have to use Countrywide, at least in the short-term. I haven’t confirmed Four Seasons or Bravern.

    One project that won’t see the light of day under its condotel model is 1 Hotel. It has too many strikes against it – Fannie Mae guidelines, construction financing, a down market and the fact the condotel units aren’t even legal under current city ordinance.

  5. Tim S says:

    Although surely the current market doesn’t support, I do wonder about the long-term impacts of these rules. Assuming markets improve, but never again reach the lofty times we had with new condo projects pre-selling 90%+ in the first few weeks, will developers ever want to risk building a new condo project? I would think that these new rules add A LOT of risk to any new development since if you are unable to reach that 70% minimum, you would basically be forced to repeatedly delay closings until you do sell 70%, or you would be forced to go apartment. Either way, this would cost the developer A LOT of $ – a risk they would be pretty adverse to taking. If I am understanding this correct, and a typical developer’s risk tolerance, it seems there could be very little new condo development for A LONG time…

  6. Ben Kakimoto says:

    Tim S – I think that’s the point of the revision, to discourage new development in order to allow the absorption of current inventory and to stabilize the condo market. From what I gather, Florida appears to be the impetus. However, new projects can get a case-by-case exception so it doesn’t necessarily rule out new development and the rule can always be changed in the future.

  7. O. Burn says:

    The 20% commercial rule absolutely crushes established smaller condos with street-level retail. For example, the Colonial Grand Pacific downtown is 45% commercial with 1st ave and Post Alley commercial frontage underneath 3 residential floors with 37 units. It’s been that way since it was rehabbed and formed in 1982.

    I could imagine many more buildings with street-level retail getting hit by the 10% single entity rule, assuming a single commercial owner collecting rent on all those spaces.

  8. Leigh says:

    Isn’t there a bit of a silver lining in that condo buyers who haven’t closed yet on their deals may have an opportunity to re-negotiate their deals? I assume developers will need to drop prices significantly to generate interest and thus may lose buyers who have earnest money on the table if they don’t drop their prices also. What do you think?

  9. Ben Kakimoto says:

    Leigh – I suspect condo developers will covert usage (e.g. apartments) or sell the project (e.g. Domaine & Expo 62) instead of renegotiating pre-sales or slashing prices.

    Follow-up to Rick’s Marselle question – per a representative with Williams Marketing, we should be hearing more information in a couple of weeks.

  10. Tim S says:

    Thanks, and good point Ben. Glad to hear exceptions can be made, and of course things could change. That said, new regulations and laws have a way of staying on the books well beyond their need. In any regards, it is probably going to be 3-5 years before any significant new projects want to break ground anyway…

    I would also assume the 20% commericial rule would make a building like Olive 8, Four Seasons or Madison Tower currently next to impossible?

  11. Ben;
    Thanks for your review of Ruby, however I want to make it clear that there is no Plan B to go apartment. To underscore that point, we have some terrific breaking news to share. As of today, Ruby has partnered with a local lender (Seattle Mortgage) looking to actually lend money! They have committed to close homes now, ie, we are move-in ready with no pre-sale requirement. We are also working with other regional lenders for additional commitments to close homes with no presale requirements. Further, with our aggressive pricing and seller financed rate buy-down’s for the first buyers, you can move in with payments as low as $996 per month. Ruby on Eastlake is both FHA and VA approved, so buyers can take advantage of every financial opportunity to get into new home ownership. Don’t forget the $8,000 Federal tax credit for first time buyers as well. At payments of $996 per month, that $8,000 means a good part of 2009 will be effectively free at Ruby!

    Bryon Ziegler, V.P. Williams Marketing

  12. Ben Kakimoto says:

    Bryon – that’s terrific news for Ruby.

  13. Andrew says:

    I have been trying to refi my condo in Kirkland to take advantage of the low rates. I was declined because one person owns more than 10% of the units in my complex. Its a 12 unit complex and the individual owns 2. If these lending rules dont go into effect until March 1 why was I denied?

  14. Ben Kakimoto says:

    Andrew – many lenders began implementing/adhering to the changes in anticipation of the effective date. The guidelines only apply to Fannie Mae backed loans so there are other options available. You may want to check out a few lenders.

  15. Chris says:

    Do you foresee these changes having a positive or negative long term impact on the Seattle condo market?
    On the one hand developers will shy away from building new projects and inventory will decrease, therefore increasing demand and with it condo values will begin to appreciate again. On the other hand with all these restrictions in place, buyers and lenders could tend to stay away from condos because of all the red tape and the demand will actually go down for existing condos.

  16. Melvin says:

    I would characterize these changes as “urban warfare” – the 10% single owner and 20% non-residential limits seem designed to discourage mixed-use buildings of all kinds and kill street level retail under condos.

    Apparently, FNMA didn’t get the memo: LeCorbusier is dead.

    Walkable neighborhoods are incompatible with FNMA’s new rules.

  17. Colleen Lane says:

    The news about Ruby has partnered with Seattle Mortgage is great as it shows that some companies are trying to help the consumer during these times of financial hardships! Thanks for the information!

  18. Mark Cosens says:

    In Michigan, most sub developmeents of single family homes have the development classified as “site condos.” But these are indeed single family homes. Apparently this is affecting loans as Fannie Mae is classifying the homes as condos. Does anyone have any experience with this and how to close a mortgage on a single family home that is in a development classified as a site based condo?

  19. What does “No more than 10% of a project can be owned by a single entity.” mean?

    We are building a 16 unit air condominium (Low Impact Development, deep green) in unincorporated Snohomish County. It is a mixture of single family and two-unit town homes. We have a LLC that owns the property, with potential condo owners as voting members of the LLC. My wife and I own distribution rights to 2 units, which makes our holding > 10%. Another family owns an even greater equity share in the LLC.

    All the permits have been approved and we want to start construction as soon as we get construction loan financing. BECU says it will consider construction loans for FNMA approved condos. If we do the construction in two phases: 8 + 8 we meet the 70% rule, but maybe not the “Mo more than 10% of a project can be owned by a single entity.” rule.

    Is this something that can be waived for small residential condo associations?

  20. Ben Kakimoto says:

    Woody, Fannie Mae will allow for exemptions on a case-by-case basis. For more information, I’d recommend you speak with lenders who are more familiar with the guidelines than I am. Also, you may find additional information at

  21. Beth Summers says:

    We are in the process of buying a new construction condo with retail space below. There are 7 retail shops & 14 condos. We were informed of the new no more than 20% can be retail to get a loan with Fannie Mae. We were told that we could get a loan through a local bank and they would keep the loan “in house” so we would not have to get a commercial loan. My question is if we go to sell the property in the future will the buyer have to get a commercial loan? What are your thoughts. Would you purchase this property or look for something else? Thanks

  22. Ben Kakimoto says:

    Beth – provided the rules are not amended again, potential buyers may need to seek a non-Fannie Mae mortgage loan in order to purchase such as FHA or VA, find a lender who’ll hold the loan in their portfolio (“in-house”), or pay cash. So, there are options available (depending on value and number of other FHA purchases in the complex). Additionally, lenders can contact Fannie Mae for a waiver. A commercial loan wouldn’t apply in this case.

    Since this is a small project I’ll add this as well. If a single entity owns 2 units (2 of 14), the entire complex will become ineligible for a Fannie Mae backed loan, since the entity will hold 14%, and thus over the 10% limit. We’ve seen this occur here. In one case a buyer was purchasing another unit in the building which would have increased his ownership interest to over 10%…the purchase couldn’t get funded. And, if the buyer had found alternate funding, it would then place a burden on all future sales in the building.

    These rules are something you should take into consideration, particularly for resale, but you should also consider whether it’ll make a great home and provide for your enjoyment. These rules are always subject to change. I’d recommend that you discuss your options further with your loan officer and Realtor.

  23. Jack says:

    I agree with the other posters concerned about the effect of the 20% non-residential limit on walkable communities. It seems at odds with everything we want out of cities and towns, and designed to encourage strip malls and suburban sprawl.

    My question is: what can we do? Is there a group working to change it? Who has the power or influence to make a change? Should we write our congressional representative? City council? Fannie Mae?

    Full disclosure: this affect my condo building (the Nord, in Pioneer Square). So the rule hurts me personally, but I think it hurts our country a good deal more.

  24. Phil Cleveland says:


    I am an insurance agent in California. Just today I was told about the requirement for a condo loan being changed in February, 2009 to include 20% of the loan amount for dwelling coverage. I cannot find any directive or requirement from Fannie Mae stating such a change except for your site.

    Do these requirements apply to all states or just Washington? Please advise.

    Thanks, Phil

  25. Fran Tayloe says:


    We live in a condo dwelling that is not 51% or 71% sold. The developer will purchase our existing unit (back to his inventory), but we need to obtain a loan for the new unit. Do you have any suggestions for this private funding/loan company? We do not want FHA and have used our 1-time VA option on a previous home.

    If you previously had a home with the VA option and this home is sold are you eligible to use again?

    Our credit score is just over 800

  26. Ben Kakimoto says:

    Fran – I believe you can reuse your VA Certificate but I highly recommend you verify it with a lender who’s knowledgeable with VA loans.

  27. Katie says:

    What if the property was sold at auction and being sold for a profit, fha has a 90 day hold what about a conventional? I heard 6 months, is this true for all banks?

  28. Nice thread. I’m an agent in Nashville and we are running into problems also. The trick with new construction seems to be getting onto the FHA approved list. If the building is FHA approved that seems to trump the Fannie Mae guidelines. Of course the developer will have to spend time and money to make that happen.

    Where we are having issues is in the resale market. We have several nice, completed and fairly high-end developments that are not on the FHA approved list and have higher than 30% rental rates – particuarly in the areas near Belmont, Music Row & Vanderbilt Universities. FHA spot approval is sometimes an option, but that loan product is not suitable for everyone. Also, we have very few lenders offering to portfolio a condo loan.

    All this is further complicated by appraisal issues…. what a mess!

  29. Casey Pickett says:

    Does anyone know if, before January 15, 2008, Fannie or Freddie had requirements for percentages of units to be sold or under contract to owner-occupants before a lender could offer a guaranteed mortgage?

    That is, when at the beginning of this article you say, “For new construction and newly converted condo developments, 70% of the units must be pre-sold (closed or under contract). This is being increased from 51%.”…do you know what the 51% rule was increased from?

    I’m interested in this info for both Fannie and Freddie. Thanks very much for any help.

  30. Ben Kakimoto says:

    Casey, I can’t say precisely what the guidelines were prior to January 15, 2008, but, prior to March 1, 2009 when these guidelines went into effect, the percentage was 51%. It was increased from 51% to 70% effective March 1, 2009. I believe it was at 51% for quite sometime before then. A mortgage loan officer can probably provide more historical information.

  31. Casey Pickett says:

    Ben, thanks for the suggestion to contact a mortgage loan officer. Good idea. I am curious about the history of these requirements before Fannie Mae created the 51% ruling, which they did on Jan. 15 2008. Thanks.

  32. I’m currently in the process of trying to purchase a condo. It’s basically a duplex, and each unit is seperately owned. I’m currently renting one side, and am attempting to purchase it from the landlord. The other unit is owner occupied. I’m having a hard time finding a lender. Do you know if this type of property is FNMA approved?

  33. Ben Kakimoto says:

    Dan – The info I have doesn’t mention if the 10% ownership limit is applicable to 2-3 unit buildings. Your loan officer would be far more knowledgeable on FNMA guidelines than I can be through this blog.

  34. LM says:

    Does anyone know about Fidelity insurance? the bank refused to finance my loan (with 23% down) because the condo association doesn’t have the proper insurance, condo built in 1985

  35. NYC Native says:

    Fidelity insurance is coverage for theft whining the controling or managing parties. For example say the tresurer helps himself to a big fat check or management decides to make give themselves a big bonus..hehe

    Seriously, it comes down to theft like an “Inside Job”

  36. rick allington says:

    How much fidelity ins.are they requiring.I can’t find an answer to this question anywhere.My condo. association has $300,000.00 in reserves.It must be a percentage of this amount.But what?

  37. Ben Kakimoto says:

    Rick – The best option is to consult with a mortgage professional.

    Here’s a link to Fannie Mae’s Statement of Insurance and Fidelity Coverage form (PDF). See item #6.

  38. debbie says:

    what are the fannine mae guidelines for rentals in any given condo development

  39. Ben Kakimoto says:

    @Debbie if a purchase will be owner occupied, there is no owner occupancy requirement under Fannie Mae…so no rental cap. For FHA, though, 51% of the units must be owner occupied.

  40. Hmmm. I thought the rules were FHA = 51% and FNMA = 30%. I don’t know that for sure though.

  41. Ben Kakimoto says:

    @Stephanie – I tried to find the info on the FNMA website but couldn’t locate it, so I asked a loan officer and that was the response. I’ll double check it.

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