Your Florida Condo Failed the Reserve Test — It Might Not Be Over Yet

We recently closed a 5% down Fannie Mae conventional loan on a South Florida condo where the building’s reserve budget was below 10% — the threshold that stops most lenders cold. Most of the lenders the buyer had spoken to said no. Here’s what they missed, and what it means for buyers and agents navigating the Florida condo market right now.

What Are Condo Reserves — And Why Do Lenders Care?

When you buy a single-family home, you know eventually you’ll need to replace the roof, the AC, the water heater. Most homeowners handle that as it comes — pull from savings, get a HELOC, figure it out. There’s no formal plan required.

A condominium is different. When 200 unit owners share the same roof, the same plumbing, the same elevators and fire systems, you can’t just wing it. Condo associations are supposed to plan ahead — collecting money now so the funds exist when major components need to be repaired or replaced. That accumulated fund is called replacement reserves.

Fannie Mae and Freddie Mac decided the simplest way to evaluate whether a condo was doing this responsibly was to look at what percentage of the overall budget was going into reserves. If 10% or more was being set aside, the building qualified for full financing — the full range of down payment options, just like a single-family home. Below 10% triggered what’s called a limited review, which in Florida meant a maximum loan-to-value of 75%. Not great for buyers trying to put less down.

How Surfside Changed Everything

In 2021, the Champlain Towers in Surfside collapsed, killing 98 people. The subsequent investigation revealed a condo that had been severely underfunded — they had roughly $750,000 in reserves against an estimated $16 million in needed repairs, a problem that had been documented for years without action.

The lending community responded. Fannie Mae and Freddie Mac added structural inspection requirements to their condo questionnaires. Florida enacted SB4D in 2022 and SB154 in 2023, requiring:

• Milestone structural inspections for all condos three stories or higher, 25 years or older (near the coast) or 30 years otherwise
• Structural Integrity Reserve Studies (SIRS) — a formal, third-party analysis of every major structural component, its remaining useful life, and what it will cost to repair or replace
• No more reserve waivers — condos can no longer vote away reserve funding for structural components

The Rule Most Lenders Stop At — And What They Miss

Here’s where the case study gets interesting.

A condo’s budget showed less than 10% going to reserves. On the surface, that’s a deal-killer for conventional financing. Most lenders stopped reading there.

But the condo had commissioned a SIRS report. And when we dug into that report, it showed that the association already had the amount of money they were supposed to have in the bank — per their own third-party reserve plan — and was collecting enough each month to stay on track for every major repair and replacement on the horizon.

In other words: the 10% threshold is a shortcut. What Fannie Mae actually cares about is whether the building is fully funding its reserve plan. If a reserve study from a qualified third party says the building needs to be collecting X per year and has Y in the bank today — and the numbers check out — that can satisfy the requirement, even if the budget percentage doesn’t hit 10% on its own.

Most lenders don’t dig that deep. We did. The buyer got in with 5% down on a Fannie Mae conventional loan.

The August 3 Deadline — Act Now If You Have a Condo Under 10%

This window is closing.

Fannie Mae is eliminating the limited review process effective August 2026. After that, if a condo doesn’t meet the reserve threshold (10% today, 15% starting January 2027), Fannie Mae won’t lend there — period. No limited review option, no 75% LTV path.

If you have a condo deal in progress where the building is under 10% reserves, the mortgage application needs to be submitted before August 3. That’s the application date — not the closing date. But don’t wait.

After August 3, deals in these buildings will need to go through alternative lenders who have their own programs. Those options exist, but they are not the same as getting a conventional Fannie Mae loan.

What This Means for the South Florida Condo Market

Miami-Dade County currently has 13 months of condo inventory. Single-family homes sit at roughly six to seven months. The gap exists for specific, identifiable reasons: lenders tightening standards, rising association fees driven by mandatory reserve funding, and insurance costs (though those are now beginning to come down).

But here’s the other side of that picture. Some condos have already crossed the hump. They’ve built up their reserves, they’re fully funded per their SIRS report, their insurance costs are stabilizing or decreasing — and they’re sitting in a buyer’s market with reduced competition. For buyers who are willing to understand the nuance, that represents real opportunity.

A condo that’s under contract to sell in this environment is a motivated seller. A building that’s done the hard work of getting its reserves in order is actually in better financial shape than it was five years ago. These aren’t automatically bad deals — they’re complex ones, and complexity creates opportunity for buyers who know how to evaluate it.

What to Do If Your Condo Has a Reserve Issue

If you’re a buyer, listing agent, or buyer’s agent and you’re looking at a condo with reserve concerns, the first question isn’t “does it hit 10%?” — it’s “does the building have a SIRS report, and are they following it?”

That single document can change the entire trajectory of a financing conversation.

We review condo budgets, questionnaires, and reserve studies every day. If you have a deal that another lender has turned down, we’re worth a conversation. We have access to the Fannie Mae approved condo list and multiple investor relationships that allow us to go places a lot of lenders won’t go.

For more on Condos – See our dedicated condo page: Florida Condo Loans

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Craig Garcia is President of Capital Partners Mortgage Services. Billy Mei is a Senior Loan Officer. South Florida Mortgage Report is produced weekly.