Small Condo Buildings in Chicago: 2- to 10-Unit Loan Rules

Last reviewed: October 19, 2026 · By the Chicago Condo Loans Editorial Team

Quick answer Chicago’s two-flat, three-flat and six-flat condos are often easier to finance with a conventional loan than units in big buildings. Fannie Mae waives its condo project review for units in two- to four-unit projects and in five- to ten-unit projects that aren’t part of a larger development or master association. FHA is harder: single-unit approval needs a building of at least five units, so a two- to four-unit condo needs full FHA project approval (or must qualify as a site condominium). VA always requires a VA-approved project. Insurance, the HOA lien rules and Illinois disclosures still apply to every size of building.

This is part of our complete guide to Chicago condo loans.

How do lenders treat condo buildings by size?

Detail	2 to 4 units	5 to 10 units, standalone	5 to 10 units in a larger development or master association	11 or more units
Fannie Mae project review	Waived (new and established)	Waived (new and established)	Full Review for attached units	Full Review (new attached projects: Full Review with Condo Project Manager or PERS)
FHA single-unit approval	Not available (needs 5+ units)	Available; no more than 2 FHA-insured loans in projects under 10 units	Same as standalone	Available; capped at 10% of units
VA	VA-approved project required	VA-approved project required	VA-approved project required	VA-approved project required
Fannie Mae general liability insurance	Not required when the review is waived	Not required when the review is waived	Required ($1 million per occurrence)	Required ($1 million per occurrence)
Fannie Mae fidelity/crime insurance	Not required (20 or fewer units)	Not required (20 or fewer units)	Not required (20 or fewer units)	Required above 20 units

Condo financing rules by building size. Sources: Fannie Mae B4-2.1-02, B4-2.1-01, B7-4-01 and B7-4-02 (08/05/2026); 24 CFR 203.43b; 38 CFR 36.4360.

The waiver for buildings of five to ten units is new: Fannie Mae and Freddie Mac expanded it to projects of 10 or fewer units (not part of a master association) in the same 2026 change that retired the limited review. See the August 2026 limited review change and warrantable vs. non-warrantable condos for what a Full Review checks in larger buildings.

What does Fannie Mae still check when the review is waived?

With a waiver, the lender skips Fannie Mae’s project review of the budget, reserves, litigation and owner concentration. It doesn’t waive everything. Fannie Mae’s guide says these still apply:

The unit meets Fannie Mae’s general property eligibility rules.
The project isn’t marked “Unavailable” in Fannie Mae’s Condo Project Manager.
The project isn’t a condo hotel or motel, houseboat project, or timeshare or segmented ownership project.
No more than six months of regular HOA assessments can have priority over the mortgage lien (with a narrow exception for state laws enacted by January 14, 2014).
If an appraisal is obtained, it meets Fannie Mae’s appraisal rules.
Fannie Mae’s insurance requirements are met.
The project isn’t being terminated and isn’t in insolvency proceedings.

Lenders can add their own conditions on top of Fannie Mae’s, and many still ask the association for basic documents, so confirm early what your lender wants. The condo pricing adjustment still applies to attached condo units (0.125% at 60.01–75% LTV and 0.750% above 75% on a purchase); see what the condo LLPA costs.

Why is FHA harder for two-flat and three-flat condos?

FHA single-unit approval, the route that lets one unit be approved in a building that isn’t on HUD’s list, is only available in a project with at least five dwelling units. In a two- to four-unit condo building, an FHA loan needs the whole project to be FHA-approved, or the unit must qualify as a site condominium (detached or townhouse-style dwellings where the unit is the dwelling plus the land). FHA project approval applies the standard project tests, including an owner-occupancy minimum (at least 50% under current HUD policy) and reserves of at least 10% of the budget. In a building of five to nine units, single-unit approval is possible, but no more than two units can have FHA-insured loans. Details are in FHA condo approval in Chicago.

What about VA loans?

VA has no small-building exception. Before VA guarantees a loan on a condo unit, VA must approve the project’s legal documentation, whatever the number of units, and VA has no single-unit approval. Check VA’s Condo Report and see VA condo loans in Chicago.

How does insurance work in a small condo building?

Fannie Mae applies its condo master property insurance rules to two- to four-unit condos as well as larger buildings: a master policy on the common elements and residential structures is required, unless the condo’s legal documents require individual property policies for each unit. You may still need an HO-6 policy for your interior and any per-unit deductible; see 2026 condo insurance requirements. Two lighter points for small buildings: projects that qualify for a waiver of project review are exempt from Fannie Mae’s general liability insurance requirement, and projects of 20 or fewer units are exempt from its fidelity/crime insurance requirement.

What should I check in a self-managed building?

Many Chicago two- to six-unit condos are run by the owners themselves. A waived review means the lender may not look closely at the association’s finances, so you should:

Request the Illinois Section 22.1 disclosures (budget, reserves, capital expenditures planned for the current and next two fiscal years, unpaid assessments, pending suits and insurance). See the condo questionnaire and HOA review.
Ask whether the association has waived reserves. Illinois lets an association whose condominium instruments have no reserve requirement waive reserves in whole or in part by a two-thirds vote of the total votes, and the waiver must be disclosed in bold in 22.1 responses.
Ask about planned repairs and special assessments. In a three-unit building, a new roof or masonry job is split three ways.
Confirm the master insurance policy exists, is current and names the association, and get the certificate early.
Count the dues in your budget. HOA dues and special assessments are part of your monthly housing expense for qualifying; see HOA dues and your mortgage approval.

How does this play out for common Chicago buildings?

Building	Fannie Mae conventional	FHA	VA
Two-flat condo (2 units)	Review waived	Project approval needed (no single-unit approval)	VA project approval needed
Three-flat condo (3 units)	Review waived	Project approval needed (no single-unit approval)	VA project approval needed
Six-flat condo, standalone (6 units)	Review waived	Project approval, or single-unit approval with at most 2 FHA-insured units	VA project approval needed
8-unit building in a master association	Full Review	Project approval, or single-unit approval with at most 2 FHA-insured units	VA project approval needed

Examples applying the rules above. Lender overlays can add requirements.

Buying in a newly converted small building? Conversions have their own disclosure and review rules; see new construction condo loans. If the property is a townhome, check whether it is legally a condo or a PUD: condo vs. townhome (PUD) financing.

Frequently asked questions

Do small condo buildings need a Fannie Mae project review?

Usually not. Fannie Mae waives the project review for units in new and established two- to four-unit condo projects, and in five- to ten-unit projects that are not part of a larger development or master association. Attached units in a five- to ten-unit project that is part of one need a Full Review.

Can I use an FHA loan on a two-flat or three-flat condo?

Only if the building has FHA project approval or the unit qualifies as a site condominium. FHA single-unit approval requires a project with at least five dwelling units, so it is not available in two- to four-unit condo buildings.

How many FHA loans can a small condo building have?

Under FHA single-unit approval, a condo project with fewer than 10 units can have no more than two FHA-insured mortgages. Single-unit approval is only available in projects of five or more units.

Does a small condo building need its own master insurance policy?

For a Fannie Mae loan, yes in most cases. Fannie Mae applies its condo master property insurance requirements to two- to four-unit condos, unless the condo’s legal documents require individual property policies for each unit. Projects with a waived review are exempt from the general liability requirement, and projects of 20 or fewer units are exempt from fidelity insurance.

Can a small Illinois condo association skip reserves?

Possibly. Under the Illinois Condominium Property Act, an association whose condominium instruments have no reserve requirement can waive the reserve requirement in whole or in part by a two-thirds vote of the total votes. The waiver must be disclosed in bold in the association’s Section 22.1 responses to prospective buyers.

Sources

Educational content only. We are not a lender or broker, and this is not lending, legal or financial advice. Rules change; confirm details with your lender and attorney.