Did Your Reserves Actually Get Funded This Year?
HOA reserves are the money an association sets aside for major future repairs and replacements. Most boards adopt a budget with a reserve contribution in it and assume the rest takes care of itself.
But just because the contribution is in the budget doesn’t mean the money is actually sitting in the reserve account.
Year-end is when you find out whether your HOA reserve funding actually happened. Before the books close, three questions are worth answering: Did the money actually move? Where do you stand? And what’s coming?
This post assumes a December 31 fiscal year-end.
Did the Money Actually Move Into Reserves?
A budgeted contribution is a plan. A transferred contribution is a fact.
So how can your board confirm that the reserve contributions were actually funded?
Start with the balance sheet. Check the reserve fund balance, then look at the bank statements to confirm that the budgeted contributions were actually transferred into the designated reserve account. Compare those amounts with your budget and reserve funding schedule.
Next, look for any due to or due from balances between the operating and reserve funds. These entries show when one fund owes money to another. If the association borrowed money from reserves during the year and hasn’t repaid it, that obligation should be reflected in the accounting records.
I tell boards that borrowing from reserves is not a best practice. The next board may not remember that the money is owed, and refilling reserves is rarely a popular reason to raise dues.
Can an HOA borrow from its reserve fund? That depends on state law and the association’s governing documents. Some states restrict reserve transfers or impose specific approval and repayment requirements.
If a transfer is permitted, it should have board approval documented in the meeting minutes, a written repayment plan, and proper accounting treatment as an interfund loan rather than income. Check with your attorney before moving reserve money.
Your treasurer’s report should also clearly state whether reserve contributions are on schedule.
The goal is simple: By year-end, your board should know exactly how much was supposed to go into reserves, how much actually went in, and whether anything still needs to be paid back.
Do You Know Your Percent Funded?
Having money in reserves is one thing. Knowing whether it’s enough is another.
That’s where your HOA’s percent funded comes in.
Percent funded compares your actual reserve balance with the fully funded balance calculated in your reserve study. It gives your board a clearer picture of where the association stands relative to its long-term funding needs.
As a general guide:
- 70% to 100% funded: Strong
- 30% to below 70% funded: Fair
- Below 30% funded: Greater risk of funding shortfalls
A lower percentage generally means greater exposure to special assessments or deferred maintenance when major projects come due.
But these benchmarks aren’t a substitute for reviewing your community’s actual needs. Every association has different components, ages, replacement costs, and project schedules. There is no single reserve balance that’s right for every HOA.
If you don’t know your percent funded, ask your accounting provider and reserve study professional to help you determine it.
And be careful with a healthy-looking total, especially if your reserves are pooled.
A balance of a million dollars sounds like plenty until you remember that one roof proposal alone may cost $800,000.
With pooled reserves, money is available for multiple components rather than being assigned to individual projects. That flexibility can be useful, but it also means your board needs to understand how much of the total balance is already expected to cover upcoming work.
Make sure your reserve study and accounting records are consistent with the funding approach your association uses. If you want a refresher, our post on pooled versus component reserves explains the difference.
What Projects Are Coming in the Next Two to Three Years?
One of the biggest mistakes a board can make is looking at upcoming projects one at a time.
A parking lot replacement might seem manageable. So might a roof repair or an elevator upgrade.
But what happens when all three are scheduled within a couple of years?
This is called project clustering, and it can create a funding shortfall that isn’t obvious when each project is considered separately.
Consider a community whose reserve study estimated a parking lot replacement at $400,000 in year six.
The board assumed its regular reserve contributions would cover the expense. But nobody ran the numbers against the project schedule. By year five, the community was still $180,000 short.
Now the board has some difficult choices: increase contributions, consider financing if available, postpone the work if appropriate, or ask homeowners to cover the gap through a special assessment.
And that’s just one project.
Imagine what happens when a roof replacement and major plumbing work are also coming due.
That’s why boards should list every major repair and replacement expected in the next two to three years and evaluate the combined costs against their projected reserve balances and contributions.
Your reserve study should help you do this, but only if it’s current.
I recommend reviewing the study every budget cycle. If it’s more than two or three years old, consider having it updated, particularly if construction costs, project timelines, or the condition of major components have changed.
A study prepared four years ago may significantly underestimate what your community needs today. State laws may also specify how often a reserve study must be completed or updated.
Another Reason Condo Boards Should Check Their Reserves Now
If your community is a condominium project, there’s another important development to keep in mind.
For applicable mortgage applications dated on or after January 4, 2027, Fannie Mae and Freddie Mac are increasing the minimum reserve budget allocation for affected condominium projects from 10% to 15% of annual budgeted assessment income.
That means the 2027 budgets boards are approving now could affect whether units in their communities qualify for certain conventional mortgage financing.
There is an alternative for qualifying associations with a reserve study completed or updated within the past three years. However, the budget must fund reserves at the study’s highest recommended level. A baseline funding approach that simply aims to keep the reserve balance above zero does not qualify for that exception.
CAI’s summary of the changes provides more details.
For condo boards, this is another reason to review reserve contributions and study recommendations before finalizing the budget.
Your Year-End Reserve Check
Before closing the books, make sure your board can answer five questions:
- Did the budgeted reserve contributions actually make it into the reserve account?
- Is there any money owed between operating and reserves, and is the repayment properly documented?
- Do you know your association’s current percent funded?
- Have you looked at all major projects coming in the next two to three years together?
- Is your reserve study current enough to reflect today’s costs and upcoming needs?
If you can’t answer one of these questions, now is the time to find out.
Reserve funding isn’t just about setting money aside. It’s about making sure your association has the resources to take care of its property when major repairs and replacements come due.
Think of it as a fuel tank with a known destination. You need to know how much fuel is actually there, how far you have to go, and whether you’ll have enough to make it.
If your board would like help checking where its reserves stand before year-end, schedule a consultation or call 833-CONDO-HOA.
Important Disclaimer: This post is for educational purposes only and does not constitute legal, tax, or financial advice. Always consult a qualified attorney and CPA for guidance specific to your community.
