RESERVE FUNDING
Over time, these requirements have expanded significantly. Today, most condominium associ- ations seeking conventional or government-backed mortgage financing must comply with detailed financial, physical condition, and insurance standards.
Recent updates to Fannie Mae and Freddie Mac guidance further reinforce a shift toward stronger financial discipline, enhanced documentation, and ongoing monitoring of condominium projects.
Current and emerging federal expectations generally require condominium associations to:
• Provide for adequate funding of replacement reserves and preventive maintenance. • Maintain reserve funding levels of at least 10% of annual assessment income , increasing to 15% for applicable loans beginning in 2027 . • Follow the highest funding level identified in reserve studies , rather than a lower funding approach which provides for adequate funding. The baseline funding methodology is not accepted. • Maintain sufficient documentation demonstrating financial stability, building condition, and absence of critical repairs.
Failure to meet these requirements can render an association ineligible for mortgage financing, directly affecting unit marketability, access to homeownership, and property values.
EXAMPLE: Understanding the 15% Reserve Funding Requirement Fannie Mae and Freddie Mac generally require condominium associations to allocate at least 15% of annual budgeted assessment income to reserves. Certain income sources may be excluded from the calculation, including special assessment income, utility pass-through income, and cer- tain incidental income, as permitted by agency guidelines. EXAMPLE: An association has $900,000 in annual assessment income, plus $100,000 in special assessment income, $50,000 in utility pass-through income, and $25,000 in incidental income. Although total revenue is $1,075,000, the reserve funding calculation would generally be based on the $900,000 in regular assessment income. Under a 15% requirement, the minimum reserve contribution would be $135,000 (15% of $900,000).
Associations should consult current Fannie Mae and Freddie Mac guidance and qualified profes- sionals when evaluating financing eligibility.
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