Buying or Selling a Chicago Condo? New Rules Could Make or Break Your Deal
Updated: 2 days ago
Written by our real estate broker Charlie Wood
As if buying or selling real estate wasn't complicated enough, there's been a pretty significant shift in how condominium buildings are evaluated by mortgage lenders. And if you own a condo, are thinking about buying one, or serve on a condo board, these changes are worth understanding.
Some are brand-new federal lending requirements. Others are existing Chicago building regulations or a new Illinois law. But they all point to the same thing: the financial health, maintenance history and management of your condo association are becoming increasingly important.
The biggest changes are especially relevant to larger condominium buildings, where buyers may face more extensive financial reviews before a lender will approve their mortgage.
So rather than give you another lesson in government regulations, let's focus on what actually matters, what questions you should be asking and why you might want to give your property manager a call.
1. Your building may face a much closer financial review when someone applies for a mortgage.
Effective August 3, 2026 | Federal lending guidelines
This is arguably the biggest change for condo buyers and sellers.
Fannie Mae eliminated its Limited Review process for established condominium projects. Previously, certain buyers could obtain conventional financing without the lender conducting an extensive review of the association's finances.
That shortcut is now gone for most established projects.
For buildings that don't qualify for an exemption or existing approval, lenders generally need to conduct a Full Review. This means looking more closely at things like:
How much money the association contributes to its replacement reserves.
How many owners are behind on their assessments.
Whether the building has significant deferred maintenance or outstanding repairs.
Whether the association's budget is adequate to maintain the property.
What about smaller buildings?
There are some important exceptions. Projects with 10 or fewer units may qualify for a waiver of the project review, provided they meet certain requirements. For example, a five-to-ten-unit building generally cannot be part of a larger development or master association to qualify for this waiver.
Larger buildings, particularly those with 11 or more units, will generally need a Full Review unless another applicable approval or exception is available.
Why should buyers and sellers care?
A building that previously presented no financing issues could now require a much more extensive review. If the association has inadequate reserves, significant maintenance issues or too many delinquent owners, it could create financing challenges for a prospective buyer.
For sellers, that can mean fewer eligible buyers, additional paperwork and potentially longer transactions.
The question to ask your association: If someone applied for a conventional mortgage in our building today, would our association pass Fannie Mae's Full Review requirements?
2. Your association may need to put more money into savings.
Effective January 4, 2027 | Federal lending guidelines
This goes hand in hand with the previous change.
Fannie Mae is increasing its minimum replacement reserve contribution requirement from 10% to 15% of an association's annual budgeted assessment income for projects undergoing Full Review.
In plain English, condominium associations may need to set aside more money each year for future building expenses.
Think roofs, elevators, balconies, masonry, plumbing, parking garages and other major repairs.
Here's a simple example:
Previous requirement: 10% of annual assessment income.
New requirement: 15% of annual assessment income.
On a building collecting $1 million annually in assessments, that's an increase from $100,000 to $150,000 in annual reserve contributions.
There is another important change involving reserve studies. If an association uses a reserve study to demonstrate that it has adequate funding, its budget must now reflect the highest recommended reserve contribution in that study. The previous baseline funding method is no longer permitted for these reviews.
Does this mean everyone's HOA fees are going up?
Not necessarily. And here's some encouraging news: Fannie Mae estimates that the average increase for a project moving from 10% to 15% reserve funding will be approximately $13–$14 per unit per month. It also reports that the majority of projects already meet its reserve requirements.
This is not a requirement that every association automatically increase assessments by 5%. It is a lending eligibility requirement that applies when a project undergoes the applicable Full Review.
Why should buyers and sellers care?
An association that hasn't adequately planned for future expenses may face higher monthly assessments, special assessments or difficulty qualifying for conventional financing.
For buyers, this is a reminder that the monthly HOA fee doesn't tell the whole story. A building with a relatively low assessment but very little money saved may actually be a much more expensive place to own.
The question to ask your association: Are we currently contributing at least 15% of our annual assessment income to replacement reserves, and do we have an updated reserve study?
3. Your building's insurance requirements have changed, too.
2026 | Federal lending guideline changes
This one is a little more complicated, but it's worth knowing about.
Fannie Mae has relaxed certain property insurance requirements for condominium associations, including allowing roofs to be insured on an actual cash value basis rather than requiring replacement-cost coverage.
What's the difference?
Replacement-cost coverage generally pays based on the cost to replace the damaged property with comparable new materials, subject to policy terms.
Actual cash value coverage accounts for depreciation. In other words, an older roof may have a much lower insured value than the cost of installing a brand-new one.
Why does this matter?
Insurance premiums have become a significant expense for many condominium associations. These changes give associations more flexibility when shopping for coverage and may create opportunities to lower insurance costs.
However, cheaper insurance isn't necessarily better insurance. If a roof needs replacing, an association with actual cash value coverage could face a much larger out-of-pocket expense.
There are also other insurance considerations, including policy deductibles and the coverage individual unit owners may need through their own HO-6 policies.
The question to ask your association: Have we reviewed our master insurance policy recently, and do we understand our roof coverage, deductibles and potential out-of-pocket exposure?
4. Chicago's facade inspections aren't new, but they are important.
Existing Chicago requirement | Not a new law
If you own or are considering purchasing a condo in one of Chicago's many older high-rise buildings, this is worth paying attention to.
Chicago has long required buildings greater than 80 feet in height to participate in an exterior wall inspection and maintenance program.
These inspections help identify deterioration and potential safety issues involving the building's exterior, including masonry, balconies, windows, railings and other exterior components.
Inspections must be conducted under the supervision of an Illinois-licensed architect or structural engineer, with required reports submitted to the City.
Why should buyers and sellers care?
Facade repairs can get very expensive. A building may look beautiful from the street while quietly facing millions of dollars in masonry repairs, balcony restoration or other exterior work.
Before purchasing a condo, it's worth asking whether the building's most recent facade inspection has been completed, whether any deficiencies were identified and whether recommended repairs have been addressed.
The question to ask your association: Are we current on our required facade inspections, and are there any outstanding recommendations or repairs?
5. Illinois associations must adopt a written assessment collection policy.
Effective January 1, 2027 | New Illinois law
This one is more administrative, but it's another new requirement for condominium associations.
Under Illinois Public Act 104-0734, associations must adopt and follow a written policy outlining how they collect unpaid assessments.
The policy must address when assessments become delinquent, late fees and interest, payment plans, when delinquent accounts may be referred to an attorney, how payments are applied and what legal remedies are available.
Associations cannot take legal action to collect unpaid assessments without adopting and following a compliant written policy.
Why should buyers and sellers care?
It's another item associations and property managers need to have in order before a transaction. More importantly, it reinforces the importance of organized financial management and consistent collection procedures.
The question to ask your association: Have we adopted the written assessment collection policy required by the new Illinois law?
So, what should condo owners actually do?
You don't need to become an expert in Fannie Mae lending guidelines or Illinois condominium law. But you should understand how your building is being managed and whether it is financially prepared for the future.
Here are five questions worth asking your property manager or condo board:
Would our building qualify for conventional financing under today's Fannie Mae requirements?
Are we adequately funding our replacement reserves, and do we have an updated reserve study?
Have we reviewed our master insurance policy, including roof coverage and deductibles?
Are all required building inspections current, and have identified repairs been addressed?
Have we adopted the new Illinois assessment collection policy?
For buyers, these are important questions to ask during the due diligence process. For sellers, getting ahead of these issues can help avoid surprises when a buyer's lender begins reviewing the association.
And for condo board members and property managers, well, congratulations on your new to-do list!
The bottom line: When you purchase a condominium, you're not just buying the four walls of your unit. You're buying into the financial health, maintenance obligations and management of an entire building.
A well-managed association can protect your investment, make financing easier and help avoid unexpected expenses. A poorly managed one can create headaches for everyone involved.
And as these lending requirements continue to evolve, understanding what's happening behind the scenes of your condo building has never been more important.
As always, your Olive Well agents are here to help you navigate it all. Because buying or selling a condo is complicated enough without having to become an expert in condo association finances, too!
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