An HOA has enough in reserves when it can pay for each major repair in its reserve study on time, without a special assessment. Most Boards check this with one number, percent funded. Association Reserves, a reserve study firm, calls 70 percent funded or higher strong. The popular 10 percent rule of thumb is about the yearly deposit into reserves. It does not measure whether the savings balance is big enough.
Key takeaways (the short version)
- Reserves are the association's savings for big repairs that come around every 10, 20 or 30 years, such as a roof, an elevator or paving.
- Percent funded shows how much of that wear and tear the association has already saved for. Association Reserves calls under 30 percent weak and 70 percent or more strong.
- The 10 percent rule of thumb means putting 10 percent of yearly assessment income into reserves. That matches Fannie Mae's minimum for a condominium's budget. It rises to 15 percent for loan applications dated on or after 4 January 2027. Verify with your lender.
- Maryland requires residential condominiums, common-area HOAs and cooperatives to fund what the latest study recommends. Virginia budgets must show the study's recommended reserves beside current reserve cash.
- As of September 2026, the DC Condominium Act sets no ongoing reserve study or funding requirement for condominium associations.
- Review the reserve study with your community manager every year as part of the budget cycle, before the Board adopts the budget.
What are HOA reserves and what is a reserve study?
Reserves are money the association puts aside for large repairs it knows are coming. A roof might last 25 years and a parking lot 20. The bill for each one arrives on a predictable schedule.
A reserve study is a specialist's report that helps the Board plan for those bills. The study is an estimate of what each item will cost and when the bill will come due. It is not the plan itself. It lists each item the association must replace, what it would cost today, how long it lasts and how old it is. It ends with a recommended funding plan, the amount to deposit in reserves each year so that the money is there when each bill arrives. The Board turns that estimate into a plan when it sets the reserve deposit in the annual budget. Our guide to reserve funding in DC, Maryland and Virginia covers each jurisdiction's study rules.
How do we know if our reserve balance is enough?
Check percent funded in your reserve study. It compares two numbers:
- What you have: the cash in the reserve account.
- What you should have by now: the part of each item's replacement cost that has already been used up. Reserve specialists call this the fully funded balance.
Divide the first number by the second to get percent funded.
Say you have a car that is expected to last 10 years. Replacing it at the end of its useful life will cost $30,000. To be ready, you would put aside $3,000 a year. After 6 years, 60 percent of the car's life is used up and a fully funded owner would have $18,000 saved. An owner with $9,000 saved is 50 percent funded.
A reserve study does the same sum for every item and adds up the results, following the method in CAI's Reserve Study Standards (2023). Take a made-up 60-unit condominium:
| Item | Cost to replace today | Age and expected life | Should be saved by now |
|---|---|---|---|
| Roof | $300,000 | 15 of 25 years | $180,000 |
| Elevator | $200,000 | 5 of 25 years | $40,000 |
| Parking lot paving | $80,000 | 10 of 20 years | $40,000 |
| Total | $580,000 | $260,000 |
If the reserve account holds $156,000 at the start of the fiscal year, the association is 60 percent funded. That is $156,000 divided by $260,000.
What percent funded should our Board aim for?
Association Reserves sorts associations into bands:
- 0 to 30 percent: weak. Special assessments are common at this level.
- 30 to 70 percent: fair.
- 70 percent or more: strong.
These bands come from Association Reserves. CAI's standards do not set them. CAI defines 100 percent funded as fully funded.
Your Board sets its own target when it adopts a funding plan. CAI's standards describe the goals a Board can choose:
- Baseline funding: just enough that reserve cash never falls below zero. CAI does not recommend it long term.
- Threshold funding: the balance stays above a level the Board sets.
- Full funding: aim at or near 100 percent funded.
Percent funded is a snapshot. CAI's standards say to read it together with where the funding plan is taking it. They add that it "is not by itself a measure of 'adequacy.'"
Is the 10 percent rule of thumb enough for our reserves?
Often it is not. The rule of thumb says to put 10 percent of yearly assessment income into reserves. That matches Fannie Mae's current minimum for a condominium's budget. It is a minimum for the yearly deposit and it is often less than the reserve study recommends.
Take the same made-up condominium, with $400,000 a year in assessment income:
- 10 percent is $40,000, today's lender minimum.
- 15 percent is $60,000, the lender minimum for loan applications dated on or after 4 January 2027.
- The reserve study's funding plan recommends $72,000.
A draft budget with $45,000 for reserves clears today's minimum. It falls $15,000 short of the 2027 minimum and $27,000 short of the study.
Association Reserves reports that most associations need to put 15 to 45 percent of their total budget into reserves.
What lenders look at
Fannie Mae's Lender Letter LL-2026-03 raises the minimum to 15 percent for loan applications dated on or after 4 January 2027. Freddie Mac made the same change. For a calendar-year association, the budget adopted in fall 2026 is likely the one a lender reviews in early 2027.
A lender may accept a reserve study in place of the percentage test. The study must be completed within three years of project approval. The budget must carry the study's highest recommended amount, and the reserves on hand must meet its recommendations. For loan applications dated on or after 3 August 2026, a study built on baseline funding does not qualify.
The percentage test applies to condominiums that get Fannie Mae's full project review. For co-ops, Fannie Mae requires adequate reserves in the budget and sets no percentage. Many single-family and townhouse HOAs, and some condominiums of 10 units or fewer, can qualify for a waiver of that review. Verify your community's status with your lender and see our breakdown of the new Fannie Mae condo rules.
Where does our Board find these numbers?
Your reserve study should show:
- the reserve balance, the cash in the account today
- the fully funded balance and percent funded
- the funding plan, the recommended deposit for each year ahead
The study also lists each item's cost, expected life and remaining life. A study prepared to CAI's standards looks at least 30 years ahead. Some studies show fund status only in cash. If yours does, ask the preparer or the manager who helps build your budget for the fully funded balance and percent funded.
What does state law require our Board to fund?
- Maryland. A 2025 law (HB 292 and SB 63) covers residential condominiums, common-area HOAs and cooperatives. Each must deposit what the latest study recommends by the last day of its fiscal year. After a first study, an association has five fiscal years to reach that level. A two-thirds Board vote for hardship, after notice to all owners, allows a limited one-year deviation. The compliance calendar shows the dates.
- Virginia. The rule applies when the study shows a need for reserves. A condominium or property owners' association budget must then list current reserve cash, the year's expected deposit and the study's recommended reserves (Va. Code 55.1-1965(C) and 55.1-1826(C)).
- DC. As of September 2026, the DC Condominium Act sets no ongoing reserve study or funding requirement for condominium associations. In a conversion condominium, the declarant must include reasonable reserves in the association's budget (D.C. Code 42-1904.08(c)).
Confirm the details with association counsel.
What if our reserves are short of the study?
Raise the yearly deposit on the schedule the funding plan sets. Our budget season playbook puts that decision in October.
A community that wants to right-size its reserves does not need to wait for a big project. The Board can raise the deposit in the next budget and keep raising it each year until the balance catches up with the study. The sooner reserves are back on track, the better for the community.
If a big project comes due before the money is there, the Board can use a special assessment or an association loan, or a mix of both. Your declaration and bylaws may cap assessments or require an owner vote to borrow. Confirm with association counsel.
Make the reserve study part of every budget cycle. Before the Board adopts next year's budget, sit down with your community manager and go through the study together. Look at the current balance, percent funded, the deposit the funding plan recommends and any item due in the next few years. That one meeting each year keeps the deposit and the study in step.
Frequently asked questions
How much should a condo association have in its reserve fund?
There is no single dollar figure for every condo or HOA reserve fund. The right balance depends on what the association must replace, what it costs and how old it is. CAI's standards call reserves adequate when the fund and a steady multiyear plan pay for major projects on time. No special assessments or loans are needed.
How do you calculate an HOA reserve fund percentage?
Divide the reserve balance by the fully funded balance. The result is percent funded. Fannie Mae's condominium test is a different percentage: the yearly reserve deposit in the budget divided by the year's budgeted assessment income. Verify the lender test with your lender.
What can HOA reserve funds be used for?
Repairing and replacing the items in your reserve study, such as roofs, elevators and paving. Under CAI's standards, the cost of adding something new comes from outside the reserve fund. Your governing documents, state law and association counsel decide what else reserves may pay for. Maryland lets associations covered by its reserve law use reserves outside the funding plan if the money is repaid within five years.
Can buyers see our reserve balance?
Yes. DC condominium resale certificates, Maryland condominium resale disclosures and Virginia resale certificates all state reserve amounts. The Maryland and Virginia documents also include the current study or a summary.
This article is general information for association Boards and is not legal advice. Your governing documents and association counsel control.
EJF Real Estate Services was founded in 1996 and manages more than 650 HOA and condominium communities in Washington DC, Maryland and Virginia. Under Full-Service management we prepare the annual operating budget and present it to the Board for approval. On Fiscal Plus, a dedicated Financial Specialist meets with self-managed Boards to assess alignment with the current reserve study. Through our reserve cash management program, we recommend money market or certificate of deposit accounts with partner banks. If your Board is setting next year's reserve contribution, request a proposal at ejfrealestate.com/request-proposal or call 202-537-1801.
