Fannie Mae is Raising its Reserve Requirements
When was the last time that you reviewed your HOA's current reserve funding?
Corry Snow, CPA
10/20/20262 min read
It's budget season for most community associations. Boards are weighing higher insurance premiums, vendor price increases and aging buildings. For condominium associations, a mortgage rule taking effect in January raises the stakes on one line of the budget: reserves.
Here's what boards should know as they finalize their 2027 budgets, along with a tax question that gets more important as reserves grow.
Fannie Mae is raising the reserve bar
When someone buys a condo with a conventional mortgage, the lender usually checks that the whole project meets Fannie Mae's standards. One of those standards is how much of the budget goes to replacement reserves for roofs, paving, elevators and other big-ticket items.
Under Fannie Mae's Lender Letter LL-2026-03, that minimum rises from 10% to 15% of annual assessment income for loan applications dated on or after January 4, 2027. An association collecting $500,000 a year in assessments would need to budget at least $75,000 for reserves.
A few related changes are already in effect:
Reserve study option. A lender can rely on a professional reserve study instead of the 15% test. The budget must then include the highest reserve contribution the study recommends, and the "baseline funding" method is no longer accepted.
More full reviews. Fannie Mae retired its streamlined "Limited Review" process for applications dated on or after August 3, 2026, so more condo projects now get a full review.
Deductible cap. For loans with applications dated on or after July 1, 2026, the master insurance policy's deductible can't exceed $50,000 per unit.
Why it matters: if your budget falls short, buyers may struggle to get conventional financing. That can slow sales and weigh on every owner's home value. These rules apply to condominium projects. Single-family HOAs aren't reviewed the same way, but a well-funded reserve is still sound planning.
Five budgeting tips for 2027
Start with this year's actuals. Compare actual income and expenses with the 2026 budget to spot trends before you set new numbers.
Update your reserve study. It's the best support for your funding plan with lenders and owners alike.
Get insurance quotes early. Premiums are one of the hardest numbers to predict, so don't leave them for last.
Phase in increases. Steady, modest increases are usually easier on owners than a surprise special assessment later.
Communicate early. Explain to owners why reserves are going up and how it protects their property values.
What this means for you
Condo boards: Check whether your 2027 budget puts at least 15% of assessments into reserves, or whether a current reserve study supports a different number.
All HOA boards: Build the budget from actual results, an up-to-date reserve study and early insurance quotes.
If your board would like help reviewing the 2027 budget, interpreting a reserve study or choosing the right tax return, contact our office. We work with community associations and are happy to help.
This article is general information only and is not tax, legal or lending advice. Rules change and every association is different, so please consult a qualified professional before acting.