New Condo Underwriting Rules: What Chicago Condo Buyers and Sellers Need to Know

If you're buying or selling a condominium in Chicago, there are important changes to mortgage underwriting that could affect your transaction.

While buyers often focus on interest rates and monthly payments, lenders are placing much greater emphasis on the financial health of the condominium association itself. These updated lending guidelines are designed to reduce risk by ensuring condominium buildings are financially prepared to maintain their properties for years to come.

Why Are the Rules Changing?

Following several high-profile condominium structural failures around the country and increasing concerns over deferred maintenance, Fannie Mae and Freddie Mac have strengthened their condominium underwriting standards.

Rather than focusing solely on a buyer's financial qualifications, lenders are now taking a much closer look at the condominium association itself. In many cases, the financial strength and physical condition of the building can determine whether a buyer is able to obtain financing.

How Different Sized Condo Buildings Are Affected

Not every condominium association will experience these changes in the same way. In Chicago, where everything from two-unit conversions to high-rise towers are common, the impact varies depending on the size and complexity of the building.

Two- to Four-Unit Associations

Many Chicago condominium buildings contain only two, three, or four units. These smaller associations often operate with:

• Limited reserve funds

• Informal budgets

• Volunteer management

• Minimal financial documentation

• No professional management company

While these buildings remain financeable, lenders are increasingly requesting documentation that demonstrates the association is financially healthy.

For buyers, this means it is becoming more important to review:

• Reserve balances

• Association budgets

• Insurance coverage

• Planned repairs

• Special assessments

Small buildings that have organized financial records and consistently collect assessments are generally positioned to move through underwriting more smoothly than associations with little documentation.

Five- to Twenty-Unit Buildings

These boutique buildings represent a large portion of Chicago's housing market.

Many are professionally managed and maintain reserve accounts, but the quality of financial management can vary significantly.

Lenders are paying closer attention to:

• Reserve funding

• Delinquent assessments

• Insurance coverage

• Upcoming capital improvements

• Deferred maintenance

Buildings that have delayed maintenance projects or rely heavily on special assessments may experience greater underwriting scrutiny.

Mid-Size and Large Condominium Associations

Larger associations often have professional management, engineering reports, reserve studies, and stronger financial reporting.

While these buildings generally have an advantage from a documentation standpoint, lenders are now reviewing much more than just the financial statements.

Large buildings may also receive additional scrutiny regarding:

• Structural inspections

• Deferred maintenance

• Reserve studies

• Insurance coverage

• Pending litigation

• Large special assessments

Simply being a large association no longer guarantees an easier approval process.

What Buyers Should Know

More Buildings Will Receive a Full Financial Review

Many condominium purchases previously qualified for a streamlined review. Under the updated guidelines, more buildings will require a comprehensive review before a conventional loan can be approved.

Lenders may review:

• Association budgets

• Reserve fund balances

• Insurance coverage

• Special assessments

• Deferred maintenance

• Financial statements

• Structural concerns

Buyers should expect additional documentation requests and, in some cases, a longer underwriting process.

Reserve Funds Are More Important Than Ever

Beginning in 2027, many associations will generally be expected to contribute approximately 15% of their annual operating budget toward reserves unless they have a recent reserve study supporting a different funding level.

Healthy reserve accounts help pay for major projects such as:

• Roof replacements

• Masonry repairs

• Porch reconstruction

• Elevator modernization

• Plumbing replacements

• Parking lot resurfacing

Buildings with well-funded reserves are generally viewed as lower lending risks.

Reserve Studies Matter

Reserve studies estimate the remaining useful life of a building's major components and recommend how much money should be saved for future repairs.

Associations with current reserve studies are often better positioned during the mortgage approval process because lenders can better evaluate the building's long-term financial planning.

Insurance Requirements Continue to Tighten

Lenders are paying closer attention to the association's insurance coverage than ever before.

They may review:

• Property insurance

• Replacement cost coverage

• Deductibles

• Fidelity/crime coverage where required

• Compliance with Fannie Mae and Freddie Mac lending standards

As insurance costs continue to rise throughout Chicago, this has become an increasingly important factor during underwriting.

What Sellers Should Know

The Financial Health of Your Building Matters

Today's buyers aren't just purchasing your unit—they're buying into your condominium association.

Buildings with:

• Strong reserve funds

• Well-maintained common areas

• Organized financial records

• Appropriate insurance coverage

• Minimal deferred maintenance

are generally easier to finance and may appeal to a broader pool of qualified buyers.

Prepare Association Documents Before Listing

Having important association documents available before your property goes on the market can help reduce delays and provide buyers with greater confidence.

Helpful documents include:

• Current operating budget

• Reserve account balance

• Reserve study (if available)

• Insurance certificate

• Information regarding special assessments

• Recent board meeting minutes

Providing these documents early can make the underwriting process smoother and help prevent financing surprises.

Why This Matters in Chicago

Chicago is unique because it has thousands of condominium associations ranging from two-unit conversions to large downtown high-rises.

The new underwriting standards place greater emphasis on how well each association plans for future maintenance—not simply how many units it contains.

Whether your building has two units or two hundred, lenders increasingly want to see evidence that the association is financially prepared to maintain the property and address future repairs without relying on emergency special assessments.

Bottom Line

These underwriting changes represent one of the most significant shifts in condominium financing in years.

For buyers, evaluating the financial health of the association is becoming just as important as evaluating the home itself.

For sellers, belonging to a well-managed association with healthy reserves, adequate insurance, and organized financial records can make your property more attractive and easier to finance.

Working with a Realtor who understands these evolving lending standards can help buyers avoid financing obstacles and help sellers position their homes for a smoother transaction in today's Chicago condominium market.