The Condo Rule Silver Linings for 2026 The "Small Building" Condo Waiver (5–10 Units)

The Silver Lining in the 2026 Condo Rules: A Big Break for Small Buildings and Investors

It is no secret that 2026 has been a tough year for condominium financing in California. Between the enforcement of SB 410 balcony inspection disclosures and Fannie Mae and Freddie Mac retiring their streamlined "Limited Review" process in August 2026, larger condo communities with deferred maintenance or underfunded reserves are facing intense scrutiny in escrow.

However, buried inside those exact same 2026 Fannie Mae (LL-2026-03) and Freddie Mac guidelines are two massive silver linings that many buyers, sellers, and agents have overlooked. If you are looking at a boutique condo building, a small townhome complex, or a building with a high percentage of rental units, financing actually got easier in late 2026.

Here is how to take advantage of the new rules.

1. The 5-to-10 Unit "Small Building" Waiver

In Los Angeles—from Sherman Oaks and Studio City to Santa Monica and West Hollywood—a huge slice of the condominium and townhome inventory consists of smaller, boutique complexes of 5 to 10 units.

Historically, small HOAs were a nightmare for conventional underwriters. Because these associations are often self-managed by the homeowners, they rarely have formal reserve studies or professional management companies, causing deals to fall apart over paperwork technicalities.

The 2026 Rule Change: Effective August 3, 2026, Fannie Mae and Freddie Mac introduced a Project Review Waiver for 5-to-10 unit condo projects (expanding a waiver that previously only applied to 2-to-4 unit buildings).

Instead of putting a 6-unit or 8-unit building through a grueling Full HOA Review, lenders can waive the project review entirely—meaning no budget review, no reserve percentage requirement, and no delinquency ratio cap—provided the building meets basic safety and legal guardrails:

• The project is not a condotel, houseboat, or multi-dwelling unit project.

• The HOA has no active litigation involving the structural safety or habitability of the building, and no unfunded critical repairs.

• Master property and liability insurance meet standard coverage requirements.

• No single person or entity owns more than 2 units in the building.

2. Freddie Mac Drops the 50% Investor Concentration Cap

For years, one of the most frustrating deal-killers in condo real estate was the dreaded "investor concentration ratio." If more than 50% of the units in a building were rented out by landlords, conventional lenders would often reject the building—forcing buyers into higher-rate Non-QM or portfolio loans, even if the buyer planned to live in the unit as a primary residence.

The 2026 Rule Change: In its matching 2026 condo overhaul, Freddie Mac officially eliminated its 50% investor concentration cap and dropped strict owner-occupancy percentage minimums for established condo projects.

As long as the HOA is financially sound, structurally safe, and no single entity owns more than 20% of the units (in a 21+ unit building), both primary residence buyers and real estate investors can now secure standard conventional financing in rental-heavy buildings that were previously locked out of the conventional market.

Buying or selling a townhome or condo in Los Angeles? Knowing how to route a condo loan—whether leveraging the 5-to-10 unit waiver or matching an investor-heavy building with the right agency guidelines—is the difference between a smooth closing and a canceled escrow. Contact us to audit your HOA’s eligibility before you make your next move.