Published September 25, 2026 · Chicago Condo Loans Editorial Team · How we research
Quick answer For conventional loan applications dated on or after January 4, 2027, Fannie Mae will require a condo building reviewed under its Full Review process to budget at least 15% of its annual assessment income for replacement reserves, up from 10%. A building that budgets less can still qualify through a reserve study, but since August 3, 2026, the budget must include the study’s highest recommended reserve contribution. The change comes from Fannie Mae Lender Letter LL-2026-03 (March 18, 2026) and applies to conventional loans sold to Fannie Mae, not to FHA or VA loans.
This update is part of our guides to warrantable vs. non-warrantable condos and reading an HOA budget like a lender, within our complete guide to condo loans in Chicago.
What exactly changes?
| Requirement | Rule | Applies to | Effective |
|---|---|---|---|
| Minimum reserve allocation | At least 15% of the annual budgeted assessment income (was 10%) | Buildings reviewed under Full Review | Loan applications dated on or after Jan. 4, 2027 |
| Reserve study instead of the budget test | Budget must include the study’s highest recommended reserve allocation | Buildings that rely on a reserve study | Loan applications dated on or after Aug. 3, 2026 |
| Baseline funding | No longer accepted | Reserve studies used for lender review | Loan applications dated on or after Aug. 3, 2026 |
Baseline funding is a reserve plan that lets the reserve balance fall toward zero without going below it. Fannie Mae no longer accepts it, because a building funded that way has almost no cushion when a big repair comes due.
What does 15% look like for a building?
Take a hypothetical 50-unit Chicago building that collects $600,000 a year in assessments:
- At 10%, the budget must set aside $60,000 a year for reserves.
- At 15%, it must set aside $90,000.
- The $30,000 gap works out to about $600 per unit per year, or $50 a month on average. Each owner’s actual share depends on their percentage interest in the building.
A board can close the gap by raising assessments, moving money from other budget lines, or a mix of both. A building already budgeting 15% or more doesn’t need to change anything for this rule.
Why this matters during Chicago budget season
Many associations adopt next year’s budget in the fall, so 2027 budgets being drafted now will be the ones lenders see in January. Illinois law gives owners a say in that process:
- Advance copy of the budget. Each owner must receive the proposed annual budget at least 25 days before the board adopts it, showing which portions are for reserves, capital expenditures or repairs, and real estate taxes (765 ILCS 605/18).
- The 115% petition right. If an adopted budget or separate assessment would push the year’s total assessments above 115% of the prior year’s, owners holding 20% of the votes can petition within 21 days for an owners’ meeting. The budget stands unless a majority of all votes rejects it.
For buyers, the timing matters. If your loan application will be dated on or after January 4, 2027, the lender will test the building’s budget against 15%, so ask for the 2027 budget, not just the current one.
What should buyers check?
- The reserve line as a share of assessment income. Divide the annual reserve contribution by total annual assessments.
- Whether there’s a current reserve study, and whether the budget funds its highest recommended contribution.
- The reserve balance and planned projects, which appear in the Illinois 22.1 disclosures.
- Planned assessment increases or special assessments for 2027.
Our guide to the condo questionnaire and HOA review walks through each of these. For the related August 2026 change, see Limited Review is gone.
Does this change FHA condo rules?
No. FHA sets its own standards and generally requires at least 10% of the budget for reserves, or a current reserve study. This Fannie Mae change doesn’t alter that. See FHA condo approval in Chicago.
Frequently asked questions
Is the 15% reserve requirement an Illinois law?
No. It’s a Fannie Mae lending standard for conventional loans it buys. Illinois law requires budgets to show reserve amounts, but the 15% figure comes from Fannie Mae.
Does the 15% rule apply to small condo buildings?
It applies to buildings reviewed under Full Review. Buildings that qualify for Fannie Mae’s waiver of project review, generally those with 10 or fewer units that aren’t part of a master association, don’t go through a Full Review.
Which date decides whether 10% or 15% applies?
The loan application date. Applications dated on or after January 4, 2027 must meet the 15% standard.
Sources
- Fannie Mae Lender Letter LL-2026-03 (March 18, 2026)
- Illinois Condominium Property Act, 765 ILCS 605/18 (bylaws, budgets and assessments)
- HUD: FHA Condominiums
Educational content only, not lending or legal advice. See our Disclaimer.