New Reserve Funding Standards

Beginning in January 2027, new reserve funding requirementsfrom Fannie Mae and Freddie Mac will change how condominium association budgetsare evaluated by lenders. Because many homebuyers rely on conventionalfinancing backed by these agencies, an association’s reserve funding candirectly affect whether buyers are able to obtain financing and whether currentowners are able to refinance.

For loan applications dated January 4, 2027 or later,condominium associations will generally need to meet one of two reserve fundingstandards:

Contribute at least 15% of regular assessment income to reserves, an increase from the previous 10% standard; or

Fund the highest recommended contribution identified in a qualifying reserve study completed or updated within the last three years.

Associations only need to meet one of these options.However, there is no phase-in period, which makes the 2027 budget especiallyimportant. The budget adopted by the Board this fall will be the budget lendersreview for loan applications throughout 2027.

The change is also part of a broader shift in how Fannie Maeand Freddie Mac evaluate condominium projects. Limited and streamlined reviewshave been retired, meaning nearly every condominium loan now receives a morecomprehensive review that includes the association’s budget. Baseline reservefunding strategies that allow reserves to fall close to zero are also no longeraccepted.

Why This Matters to Your Community

Reserve funding is no longer simply an association budgetingdecision. If a community does not meet lender requirements, a prospective buyermay have difficulty obtaining conventional financing, an owner may havedifficulty refinancing, and a home sale could potentially fall through. Overtime, financing restrictions can also affect the marketability of homes withinthe community.

This makes maintaining a current reserve study andappropriately funding reserves increasingly important, not only for thelong-term financial health of the association, but also for individualhomeowners.

Looking Ahead: California’s AB 2050

California associations also have another fundingrequirement on the horizon. AB 2050, signed into law in September 2026, willrequire qualifying associations beginning January 1, 2032, to fund reserves atno less than the minimum contribution identified by their reserve study to keepreserves from falling below zero over a 30-year period.

While 2032 may seem far away, addressing reserve funding aspart of the 2027 budget can help communities make smaller, more predictableadjustments over several years, rather than facing a significant increase orspecial assessment later.

What Boards Should Do Now

As part of the 2027 budgeting process, your Manager willreview your association’s draft budget against the new Fannie Mae and FreddieMac standards and help identify the most appropriate path forward. Boardsshould also review the age and funding methodology of their reserve study,particularly if the study is more than three years old or uses baselinefunding.

The goal is bigger than compliance: appropriately funded reserves help protect theassociation’s financial health while also helping preserve owners’ access tofinancing when they are ready to sell or refinance.