Reserves Are No Longer Optional: What Lenders and California Just Changed
Key Takeaways
- Fannie Mae and Freddie Mac are raising minimum reserve allocations for affected condominium projects from 10% to 15% for loan applications dated on or after Jan. 4, 2027. These requirements do not apply to every HOA.
- A qualifying reserve study completed or updated within the past three years can provide an alternative to the 15% allocation, but the association must fund at the study’s highest recommended level. Baseline funding is not accepted under this alternative.
- California AB 2050’s new funding duties begin Jan. 1, 2032. Associations must make the minimum annual contribution identified in their reserve study. A minimum transfer of 15% of gross annual budget is required when the study projects a negative reserve balance within 30 years.
- Before finalizing the 2027 budget, check which requirements apply, compare your proposed contribution with your reserve study, and explain the funding plan to homeowners.
Homeowners association (HOA) reserves are the money an association sets aside for major future repairs and replacements. When boards are trying to keep dues down, reserve contributions can become the number that gets adjusted to make the budget work. But putting less money aside does not make the roof last longer or the paving cost less.
It means the community will have to find that money somewhere else when the work comes due. That can mean a special assessment, a loan, or repairs that get postponed because the money is not there.
Boards reviewing HOA reserve requirements for 2027 should pay attention to two changes. Fannie Mae and Freddie Mac are increasing reserve-allocation requirements for affected condominium projects beginning in January 2027. California has also signed AB 2050 into law, with new reserve-funding duties beginning in 2032. The requirements apply to different communities on different timelines, but both give boards a reason to review their reserve contributions this budget season.
What Are the New Condo Reserve Requirements for 2027?
Fannie Mae’s Full Review requirements increase the minimum replacement-reserve allocation for condominium projects from 10% to 15% of annual budgeted assessment income. The change applies to loan applications dated on or after Jan. 4, 2027. Freddie Mac is also increasing its minimum reserve allocation to 15%. These are financing-eligibility requirements for affected projects, not a blanket funding mandate for every homeowners association.
For affected projects, this is not just an accounting issue. If a project does not meet the applicable requirements, buyers may be unable to obtain mortgages purchased or guaranteed by Fannie Mae or Freddie Mac. That can make sales and refinancing more difficult and reduce buyers’ financing options. If your community is concerned about its warrantable status, reserve funding needs to be part of that discussion.
There is an alternative to the percentage-based requirement. An association can rely on a qualifying reserve study completed or updated within the past three years, provided it funds reserves at the highest recommended level in that study. Baseline funding, which allows the projected balance to approach zero without falling below it, is not accepted under this alternative.
Fannie Mae’s highest-recommended-allocation and baseline-funding changes already apply to loan applications dated on or after Aug. 3, 2026. The increase to 15% follows in January.
The important word here is funding. Having the study on a shelf is not enough. If you are using the reserve-study alternative to meet the Fannie Mae condo reserve requirements, check both the study and your proposed contribution. They must meet the applicable criteria before you finalize the budget.
The timing is what makes this a budget-season issue. The new requirement is triggered by the loan application date, not the closing date. For a calendar-year association, an application submitted on or after the January deadline will be evaluated against the 2027 budget in effect at that time. That is the budget your board is building this fall.
Do not wait until January to start the conversation. As I explained to Connecticut board members during a recent Community Associations Institute presentation, lenders will be looking at the budgets being adopted now. Check the proposed reserve contribution before the budget is finalized, while there is still time to address a gap.
What California AB 2050 Means for HOA Reserve Funding
On Sept. 29, 2026, Gov. Gavin Newsom signed AB 2050 into law. Its new reserve-study and funding provisions become operative Jan. 1, 2032. California boards have time to prepare, but they should understand what the law will require before treating that date as something to worry about later.
Beginning in 2032, California associations must fund reserves annually at least at the minimum contribution identified in their latest reserve study. If the study projects a negative reserve balance within the following 30 years, the association must transfer at least 15% of its gross annual budget to reserves each year. That transfer requirement continues until the study no longer projects a negative balance.
Annual review is already part of California’s reserve-study framework. Beginning in 2032, AB 2050 expressly requires associations subject to its study provisions to review and update the study annually. The funding plan is something boards will need to revisit as costs, component conditions, and available reserves change.
This is not a requirement to be 100% funded. It is a funding obligation tied to the study’s minimum contribution and the projected ability to pay for future reserve expenses. Also, do not confuse California’s 15% calculation with the lender requirement. California uses gross annual budget for its conditional transfer requirement. The lender allocation uses annual budgeted assessment income. They are not the same calculation.
Under the law’s shortfall provisions, an association that cannot fund the minimum contribution through its gross annual budget must levy a reserve funding special assessment. Existing assessment procedures in Civil Code Section 5605 still apply. If the amount exceeds the cap permitted without a membership vote, the association must seek member approval for the additional amount.
This particular reserve funding special assessment may be levied no more than once every nine years. That restriction does not cover every other type of special assessment.
Realtor.com reported that AB 2050 could increase HOA fees for California homeowners while potentially improving safety and reducing surprise assessments. For boards, that means explaining both the immediate cost of higher contributions and the financial risks of leaving future repairs underfunded.
I understand why homeowners do not want higher dues. But when reserves fall short, the association has to make up the money somehow through a special assessment, borrowing, or postponing the work. The goal is to plan for those expenses and explain them to owners before they become a surprise.
I worked with a waterfront community that kept repairing old roofs because it did not have the money set aside or the appetite to take on a major capital project. Meanwhile, leaks continued to affect owners, and the association kept spending money on repairs and damaged drywall. The community was paying for the symptoms without addressing the cause.
California’s funding duties do not begin in 2027. But the preparation period gives boards an opportunity to review their studies, understand projected shortfalls, and discuss how to address them. Use that time to build a plan rather than leave the next board to figure it out as the deadline approaches.
What to Check Before Finalizing Your 2027 HOA Budget
Start with the HOA reserve study, not whatever is left over after you finish the operating budget. That was one of my main points to the Connecticut boards: reserve contributions should be intentional. Look at what the study recommends, what you have in the bank, and which major projects are coming.
Before the board locks in the budget, work through these questions:
- Does the lender requirement apply? If your condominium project is subject to the applicable lender budget review, check whether the proposed 2027 contribution meets the 15% requirement or qualifies for the reserve-study alternative.
- Is your study current enough? If you are relying on the lender alternative, confirm that the study was completed or updated within the past three years and that the budget funds reserves at its highest recommended level.
- Does the contribution match the study? If your budget sets aside a different amount, ask why and document the explanation. Bring your attorney and certified public accountant into the conversation when you need guidance.
- Does the operating fund owe money to reserves? Find out when the money was moved, why it was moved, and whether there is a repayment plan. That obligation should not disappear just because board members change.
- Can homeowners understand the plan? Explain what changed, which costs are driving the increase, how much is being saved for future repairs, and which projects are coming. Use plain language rather than expecting owners to work it out from a stack of reports.
There is no single rule of thumb that tells every association how much to save. The funding plan needs to reflect your community’s components, their condition, remaining useful lives, and replacement costs, not somebody else’s property.
Boards have a fiduciary duty to manage the community’s money in good faith. Monthly reports, budgets, audits, and reserve studies help document that work and build trust with owners. Make the study a working part of your financial planning, not a document that gets filed away until someone asks for it.
Know which requirements apply, understand the funding gap, and decide how to address it. That is a better conversation to have during budget season than after a buyer encounters a financing problem or a major repair comes due.
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. State laws governing association reserve funds and lender eligibility requirements vary. Consult a qualified attorney and certified public accountant for guidance specific to your community and state.
