Fannie Mae’s 15% Reserve Rule Reaches Chicago Condos on January 4, 2027. Here’s What Buyers, Sellers and Agents Should Do.
For loan applications dated on or after January 4, 2027, Fannie Mae will require a condo building to put at least 15% of its budgeted assessment income into reserves, up from 10%. Chicago buildings running tight reserves may stop qualifying for conventional financing. When that happens, a non-warrantable condo loan can often keep the deal alive, depending on the building and the buyer.
With fall under way, it’s business as usual in the Chicago real estate market. For now.
What changes on January 4, 2027?
In March 2026, Fannie Mae issued Lender Letter LL-2026-03, which rewrites the standards a condo building has to meet before Fannie will buy a loan on one of its units.[1] The change that matters most for Chicago is the reserve minimum. An association’s budget currently has to set aside at least 10% of its annual assessment income for replacement reserves. Starting with applications dated January 4, 2027, that floor rises to 15%.
Part of the change is already here. Since August 3, 2026, Fannie no longer accepts “baseline” reserve funding. A building’s budget has to fund the highest recommendation in its reserve study, and the old Limited Review shortcut is gone. My colleague Salma Mohamed covered that half in Condo Loans After Aug 3, 2026.
Why will Chicago feel it more than most cities?
Many of the city’s condo buildings are running tight reserves, have older infrastructure that needs work, or are tied up in pending litigation. Any one of those can keep a building from qualifying for conventional financing. The Chicago Cooperator reported in May that many Chicago associations, especially buildings converted from rentals in the mid-2000s, have historically run on “lean budgets and minimal reserves.”[2]
A few weeks ago, Chicago agent Matt Laricy covered the change on his podcast. He said the expectation is that as many as 20% of condo deals could be killed by it.[3]
That’s a big if. The deals that die are the ones where nobody checks the building until the project review comes back. Agents who line up a lender experienced with these buildings before the contract can keep many of them alive.
What is a Chicago agent telling her clients?
We asked Liesel Jankelowitz, a Chicago and North Shore broker with Compass (2024 Chicago Agent Magazine Rookie of the Year, Suburbs), who is advising her clients through the new rules, what buyers and sellers should be doing now.[4]
“Condo buyers need to go into a purchase with their eyes wide open.
Don’t be afraid to ask questions about the building’s financial health, upcoming maintenance and potential special assessments. The new requirements taking effect next year could impact both financing options and future monthly assessments, so it’s worth having your lender assess whether the building is likely to meet the new requirements before making an offer.
Sellers should be equally informed and transparent about their building’s financial condition. A building that doesn’t qualify for conventional financing could limit the pool of buyers. Addressing potential issues upfront can help prevent deals from falling apart during attorney review or financing.
Not every building will be affected, but it’s important for both buyers and sellers to understand what these changes could mean for them.”
Her point applies to everyone in the deal: find out where the building stands before the contract, not after.
What is a Non-QM mortgage?
A Non-QM (“non-qualified mortgage”) is a home loan that falls outside the Qualified Mortgage rules that conventional loans backed by Fannie Mae and Freddie Mac follow. That doesn’t mean subprime, and it doesn’t mean the borrower is risky. It means the loan is underwritten with more flexibility than the agency rulebook allows.
Non-QM loans are built for good borrowers and good properties that don’t fit the conventional box. That includes self-employed buyers who qualify with 12 or 24 months of bank statements instead of tax returns, investors who qualify on a property’s rental income (DSCR loans), buyers with significant assets but nontraditional income, foreign nationals, and, most relevant right now, condos in buildings that don’t pass Fannie Mae’s project review.
That last group is where January 4 hits Chicago hardest. When a building comes up short on reserves, has pending litigation, or has other issues that make it “non-warrantable,” a conventional loan may be off the table, even for a buyer with great credit and income. A non-warrantable condo loan through a Non-QM lender looks at the building differently and can keep that deal alive, depending on the building and the borrower.
How is Non-QM different from a conventional loan?
The biggest difference is who sets the rules. Conventional loans follow Fannie Mae and Freddie Mac guidelines so they can be sold to those agencies. Non-QM loans are held by or sold to private investors, so each lender sets its own guidelines within federal ability-to-repay rules.
| Conventional | Non-QM | |
|---|---|---|
| Who sets the rules | Fannie Mae and Freddie Mac | Private investors, within federal ability-to-repay rules |
| Income documentation | Tax returns, W-2s and pay stubs | Bank statements, a CPA-prepared P&L, assets, or a property’s rental income |
| Debt-to-income | Agency limits on how much income can go to debt | More flexibility, depending on the full picture |
| The building | Must meet agency project standards: reserves, litigation, commercial space, single-owner concentration, HOA delinquencies | Can finance non-warrantable condos that don’t meet those standards |
| Pricing | Usually the lowest-cost option when the borrower and building both qualify | Usually priced higher, because the lender takes on more risk |
| Best fit | Borrower and building check every box | One of them doesn’t |
How much more a Non-QM loan costs depends on the building, the borrower and the investor. Olympus works with more than 80 investors and compares them on every file, which is why buyers are often surprised by how close the options can be.
The takeaway for Chicago agents and condo buyers: Non-QM isn’t a replacement for conventional. It’s the safety net. Knowing your options before the building review comes back can be the difference between a closing and a cancelled contract.
What should you do before January 4?
The new reserve requirement applies to loan applications dated on or after January 4, 2027, and it will put more Chicago condo buildings under the microscope. Some deals that would have sailed through a few months ago will hit a wall at project review, even with a strong buyer.
When that happens, you want a lender who knows these deals inside and out: someone who can spot a risky building early, explain the options to your client, and move fast when conventional financing isn’t on the table.
That’s what we do at Olympus Financial. Whether you’re an agent with condo listings, a buyer eyeing an older building, or an owner wondering how this affects your unit, send us the building or call me directly at 847.903.0418. Let’s make sure the building doesn’t kill your deal.
- Fannie Mae, Lender Letter LL-2026-03, Condo and Co-op Project Standards, March 18, 2026.
- Mark Ainley, “Fannie Mae Raises the Bar for Reserve Funding,” The Chicago Cooperator, May 2026.
- Matt Laricy, podcast episode on updated condo financing rules, 2026.
- Interview with Liesel Jankelowitz, Compass, conducted by Adam Rabin, October 2026.
Written by Adam Rabin, licensed mortgage loan originator, NMLS #2769628, Olympus Financial, LLC (NMLS #2469800). Adam is Olympus’s Chicago condo specialist. This article is educational and not a commitment to lend or financial advice. Equal Housing Opportunity.
Send us the building. We’ll tell you whether it clears conventional review, or which non-warrantable option closes it.