When a prospective buyer or an owner looking to refinance applies for a mortgage, the lender doesn't just evaluate the buyer. They evaluate the building. And if something in your building's finances or physical condition raises a red flag, it can kill the deal - sometimes without anyone understanding why.
Here's how it works, what gets flagged, and why it matters to every owner in the building, not just the one trying to sell.
The questionnaire most people don't know about
When a buyer applies for a conventional mortgage on a condo or co-op, their lender assesses whether the building meets Fannie Mae's eligibility standards. To do that, the lender sends a comprehensive questionnaire to the building's managing agent. The lender inquires about the building’s cash position, reserve accounts balances, delinquency rates, is the, ongoing or planned capital projects, assessments, loans, ongoing physical condition, insurance, and more.
The banks then report their findings on the questionnaire to Fannie Mae, where the loan is either certified as eligible or flagged as ineligible. If it's flagged, the buyer can't get a conventional loan. That rules out the vast majority of mortgages available to buyers.
Once a building is flagged, it stays flagged until another lender completes a new questionnaire with clean findings. There's no appeal button. The only way out is a subsequent review that resolves the underlying issue.
What gets a building flagged
Fannie Mae's guidelines have gotten more detailed since the Champlain Towers collapse in 2021, and were updated again in March 2026. Here are the most common triggers.
Deferred maintenance is the big one. If identified repairs to critical components total more than $10,000 per unit and the building doesn't have the funds to cover them, the project is ineligible for conventional financing. A failing roof, a deteriorating facade, unaddressed structural concerns - these aren't just maintenance problems, they're financing problems.
Underfunded reserves are close behind. As of January 2027, Fannie Mae requires buildings to contribute to their reserves 15% of annual budgeted income, up from 10%. Many NYC buildings aren’t able to meet the current 10% recommendation.
Beyond those two, lenders are also looking at:
- Delinquency rates: if more than 15% of units are 60 or more days past due on common charges, the building can be flagged
- Special assessments that are unusually large or covering repairs that should have come from reserves
- Percentage of owner occupied vs. rental units in the building
- Active litigation, particularly anything related to construction defects or safety
- Insurance gaps - expired or inadequate coverage is a standalone basis for ineligibility, separate from everything else
What changed in 2026
In March 2026, Fannie Mae retired the Limited Review process for established condo projects, effective August 3, 2026. Limited Review was a lighter-touch option many lenders relied on. After August 3, most projects require Full Review, which means lenders need to certify the project in CPM and keep that certification current. Full Reviews are only valid for one year, so a stale approval can create a problem right at closing.
The reserve contribution increase to 15% follows in January 2027. Buildings that haven't already adjusted their budgets to account for this change may require large increases in planning for fiscal year 2027.
Why this affects every owner, not just sellers
It's easy to think of this as someone else's problem - the seller's, the buyer's, the board's. But a Fannie Mae flag affects the whole building. It shrinks the buyer pool to cash buyers and non-conforming loans, which come with higher costs and lower offers. Values fall across the board, for everyone.
Buildings that stay on top of reserves, maintenance, and financial health aren't just avoiding a compliance headache. They're protecting the asset value of every unit in the building.
The questions worth asking now
If you're on a board or finance committee, these are worth reviewing before a lender asks them first:
- Does our reserve fund meet the 15% threshold coming in January 2027?
- Do we have deferred maintenance that could be characterized as critical repairs?
- Do we have any violations that need to be cured?
- Are we up to date with all required compliance requirements?
- Are our insurance policies current and do they meet Fannie Mae’s coverage minimums?
- What's our unit delinquency rate on common charges?
- Do we know what percentage of rentals are in the building?
- Is there any active litigation that would need to be disclosed?
Most of these issues can be remediated, but they're much easier to address before a buyer's mortgage falls through than after.
At Daisy, staying ahead of issues like these is part of how we manage buildings. If you're not sure where yours stands, we're happy to take a look.
