As lenders, developers, condominium trustees, and unit owners navigate today’s evolving lending landscape, one often-overlooked
concern is whether a condominium project will qualify for conventional financing supported by Freddie Mac or Fannie Mae. These government-sponsored enterprises (GSEs) do not make loans directly to homebuyers. GSEs purchase loans from lenders to replenish the lenders’ supply of capital so that they can make mortgage loans to other borrowers. In doing so, GSEs impose a set of stringent eligibility requirements. If a project fails to meet them, financing for buyers may be restricted or altogether unavailable, thereby diminishing marketability and property value.
Condominium Hotels and Transient Housing
Perhaps the most restrictive and nuanced category involves so-called "condo hotels" and transient use properties. Projects licensed or operated as hotels or motels, or that include hotel-like services such as mandatory rental pooling, room service, daily cleaning, or centralized reservation desks, are typically deemed ineligible. Freddie Mac also scrutinizes projects that include blackout periods or occupancy restrictions on personal use, shared revenue agreements, or HOAs that actively manage short-term rentals and collect taxes on behalf of owners.
Even if a project is not explicitly labeled a hotel, it may still be
disqualified if it bears the hallmarks of transient housing. These include
vacation rental licensing, short-term rental platforms managed by the HOA, or
common spaces allocated to rental operators.
Other Disqualifying Project Structures
A range of structural and legal arrangements also render a project
ineligible, including:
- Multi-unit ownership on a single deed
- Excessive commercial space
*A project in which
more than 35% of the total above and below grade square footage of the project
(or more than 35% of the total above and below grade square footage of the building
in which the project is located) is used as commercial or non-residential
space.
- Tenancy-in-common arrangements without exclusive ownership of individual units
- Timeshare models and segmented ownership periods
- Houseboat developments or floating dwellings
- Continuing Care Retirement Communities (CCRCs)
Each of these configurations departs from the traditional condominium
ownership structure in ways that Freddie Mac deems too risky or
administratively unmanageable.
Common Element Ownership and Shared Facilities
Unit owners must collectively possess sole ownership of all common elements, including amenities and shared infrastructure. Projects in which developers retain ownership interests in the common areas, or where those areas are subject to lease arrangements, are generally disqualified. However, certain shared use arrangements between multiple residential condominium projects may be permitted if they are limited to residential use and formalized through a clear agreement governing use, maintenance, and dispute resolution.
Pending Litigation and Structural Deficiencies
If a condominium is the subject of pending litigation or alternative dispute resolution proceedings that involve safety, habitability, or structural integrity concerns, the project is not eligible. Even disputes involving the project’s developer can trigger disqualification. Minor litigation may be allowed if it is covered by insurance and poses no material financial threat to the HOA, but this exception requires thorough documentation, including attorney letters and insurance verification.
Similarly, projects in need of “Critical Repairs” are ineligible unless
and until all necessary repairs have been completed and confirmed through
engineering reports or equivalent documentation. The presence of an evacuation
order or unsafe building conditions also renders a project immediately
ineligible.
Excessive Investor Ownership
Freddie Mac limits the number of units that a single entity or investor
may own. For projects with 21 or more units, no more than 25% may be held by a
single party. Exceptions may apply to transactions that actively reduce
investor concentration, subject to other financial health criteria.
Manufactured Housing and Mandatory Membership Fees
Projects that include manufactured homes are typically ineligible unless
they comply with specialized approval processes. Additionally, projects that
impose mandatory dues or membership fees for access to recreational
amenities—such as clubhouses or fitness centers—must meet strict criteria.
Specifically, the amenities must be owned solely by the HOA and exclusively
available to its members.
Key Takeaways for Developers and Condominium Associations
Freddie Mac’s exclusion criteria are extensive, but they are not insurmountable. In many cases, projects can be structured—or restructured—through amendment of governing documents or operational adjustments to maintain eligibility. Boards should conduct a periodic eligibility audit, especially before major renovations, leasing policy changes, or litigation.
An associate in the real estate and litigation departments of the Quincy
and Boston-based firm of Moriarty Bielan & Malloy LLC, Troy handles a
variety of real estate related matters, with an emphasis on zoning and land use. Troy’s email address is ttanzer@mbmllc.com.