Why Unit Count Now Shapes a San Francisco Condo Loan

Starting with loan applications dated January 4, 2027, a lender financing a condo in a larger San Francisco building through Fannie Mae's Full Review process has to confirm that the homeowners association puts at least 15% of its budgeted assessment income into replacement reserves. The current minimum is 10%. Freddie Mac adopted the same 15% minimum for mortgages with application-received dates on or after that same day. A buyer of a flat in a four-unit Edwardian building may not face that test at all, because Fannie Mae now lets lenders waive the project review for buildings with ten or fewer units.

So two condos at the same price can carry very different financing friction. One loan mostly depends on the buyer. The other also depends on the HOA's budget, its reserve study and its insurance file. In San Francisco, where "condo" can mean a top-floor flat over a garage in the Sunset or a one-bedroom on a high floor in SoMa, that difference now shows up in the paperwork.

The line Fannie Mae drew at ten units

The change came in Fannie Mae's Lender Letter LL-2026-03, dated March 18, 2026. It expanded the Waiver of Project Review to new and established projects with ten or fewer units. Buildings with five to ten units qualify only if they are not part of a master association or larger development. The waiver still has conditions:

• The project cannot have an "Unavailable" status in Fannie Mae's Condo Project Manager.
• The project must meet Fannie Mae's property insurance requirements.
• For a Fannie Mae to Fannie Mae limited cash-out refinance, there can be no critical repairs or evacuation orders in place.

Projects that qualify for the waiver also don't need general liability or fidelity insurance under Fannie Mae's requirements.

The same letter retired the Limited Review process. Lenders had to stop using it for loan applications dated on or after August 3, 2026. Established projects that once qualified for that lighter review now go through Full Review unless they qualify for the waiver. For a 49-unit or 134-unit building, the lighter review is gone and every financed sale now goes through Full Review.

What a larger building now has to show a lender

The obligations scale with the size of the building. Here is how the two review paths compare under the rules taking effect through early 2027.

A second change affects HOAs that rely on a reserve study to justify a smaller reserve line. For applications dated on or after August 3, 2026, lenders can no longer accept the baseline funding method, which lets the reserve balance approach zero without dropping below it. When lenders use the reserve-study option, the budget must include the highest reserve allocation the study recommends.

The stakes were visible before any of this. In March 2025, the San Francisco Chronicle reported that 21 San Francisco condo complexes were among roughly 168 Bay Area projects on Fannie Mae's unavailable list. Possible reasons included insurance, deferred maintenance, structural problems and incomplete paperwork. The paper wrote that buyers in those buildings might need riskier, higher-rate loans or might have to walk away from a deal. In August 2025, the San Francisco Standard reported that lenders had blacklisted the 49-unit building at 1188 Valencia St. while its HOA sued the developer over repairs, and that this got in the way of potential sales.

Why the reserve line shows up in the monthly payment

When a building has to raise its reserve contribution from 10% to 15% of assessment income, owners usually cover the gap through dues. The Chronicle's September 20 report explained that California HOAs can raise regular dues by up to 20% per fiscal year, and can levy temporary special assessments totaling 5% of the expense budget, without a member vote.

San Francisco already has an example of what happens when building costs catch up with an HOA. The Standard reported in June 2025 that dues at the 134-unit Village at Petrini Place rose from $500 to $1,100 a month over 15 years. The association also paid $600,000 for a balcony-related renovation, and its insurance quote jumped from $98,000 to $964,000 after its pooled policy was canceled.

There is also research on how reserve mandates affect prices. The same Chronicle article cites UC Berkeley Haas doctoral student Nathan Godin, who found that Florida's 2022 reserve-funding law for condo buildings raised HOA fees as associations spent more on maintenance, and that prices for those buildings declined. Godin also noted that California already requires HOAs to review reserves every three years, so many associations may have built future maintenance costs into their dues already.

The practical point for a buyer comparing two listings is that the HOA's reserve study and budget now affect the purchase as much as the unit's finishes. A large building with healthy reserves can be the safer purchase. One that has been holding dues down by underfunding reserves has less room to keep doing that.

California added a second deadline for 2032

The state rule comes on top of the lender rules and follows a longer timeline. Governor Newsom signed Assembly Bill 2050 on September 29, 2026, as Chapter 796. Here is how the 2026 changes line up:

1. March 18, 2026. Fannie Mae issues LL-2026-03, and the expanded waiver for buildings with ten or fewer units is available right away.
2. August 3, 2026. Limited Review is retired and the baseline reserve funding method is no longer accepted for new applications.
3. September 29, 2026. AB 2050 is signed.
4. January 4, 2027. Fannie Mae's and Freddie Mac's 15% replacement reserve minimum applies to new applications.
5. January 1, 2032. AB 2050's reserve funding requirements take effect.

Starting January 1, 2032, AB 2050 requires covered associations to update their reserve study every year. The study must include a contribution level that keeps the projected reserve balance above zero for 30 years, and the association must fund at least that level. The requirement applies when the replacement value of the major components is at least half of the association's gross budget. If the 30-year projection drops below zero, the association must transfer at least 15% of its gross annual budget to reserves each year until it no longer does. If the budget can't cover that amount, the association must levy a reserve funding special assessment. A member vote is required to go above the usual cap, and this kind of assessment can be levied no more than once every nine years.

The state law uses a different test than the lenders. Fannie Mae's waiver depends on unit count. AB 2050 depends on how a building's major components compare with its budget. Robert DeNichilo of the Community Associations Institute's California Legislative Action Committee, whose organization spearheaded the bill, told the Chronicle, "This is budgeting the actual cost of ownership." The Consumer Federation of California opposed the bill and argued that it should have been paired with limits on fee increases.

What 2026 sales show

The market has favored houselike condos for most of the year, and some downtown sellers have had to compete harder. In May, the Chronicle quoted a Realtor who said condos in Noe Valley and Pacific Heights that look like houses and have direct street access were especially attractive. The same article said lenders were still looking closely at condo associations' reserves and maintenance.

In July, the Standard described downtown condos as the city's best bargains, with developers and resellers still competing for buyers. One buyer skipped a newer high-rise to avoid steep HOA fees. He bought a two-bedroom in a 1907 building near Folsom and Seventh that had been on the market for nearly a year, and closed in June at $575,000, $10,000 under asking. The same report described a seller at 2 Mint Plaza offering an HOA credit to compete with incentives at new developments.

Condo competition picked up citywide later in the summer. The Chronicle reported on October 6 that by August 2026, more than half of San Francisco condos were selling above asking, the citywide condo median had reached $1.23 million, and sales were up 11% year over year. The paper added that demand was strongest for scarce high-end homes while the broader condo market stayed mixed. Houses were stronger still. In September 2026, the California Association of Realtors put San Francisco's median single-family sale price at $2,054,000, up 17.4% year over year.

Being in a small building doesn't guarantee a bidding war. The Chronicle story was about 653 Dolores St., a unit in the four-condo Light House church conversion across from Dolores Park. It sold for $6.65 million, about $150,000 under its $6.8 million asking price, and the paper pointed to the property's uniqueness and price as the reasons competition stayed limited. At the other end of the scale, the Standard reported on November 1 that a one-bedroom at Millennium Tower, bought in August for $660,000 at a slight discount to asking, later leased for $10,000 a month. Large downtown buildings are still drawing demand. Starting with applications dated January 4, 2027, Full Review loans in those buildings will be held to the 15% reserve minimum.

Frequently asked questions

Does every building with ten or fewer units qualify for the waiver? No. A building with five to ten units cannot be part of a master association or larger development. Any building also has to stay off Fannie Mae's "Unavailable" list and meet its insurance requirements.

Will AB 2050 raise dues right away? The law's reserve funding requirements start January 1, 2032. The Chronicle reported in September that it's unclear how much the bill itself would raise monthly costs.

Does the January 2027 change apply only to Fannie Mae loans? No. Freddie Mac set the same 15% minimum for mortgages with application-received dates on or after January 4, 2027.

This post is general information, not legal, tax or financial advice. A lender can confirm how a specific building will be reviewed, and the HOA's budget and reserve study show where its dues may be heading.

If you are weighing a flat in a small building against a unit in a larger tower, or preparing to sell in a building whose reserves buyers' lenders will review closely, Dylan Hunter can go through the HOA documents and comparable sales with you before you set a price or write an offer. Let's Connect.