Condominium Association Budget

New Lending Requirements: Reserve Contributions

What condominium and common interest community boards should know

For loan applications dated on or after January 4, 2027, the referenced Fannie Mae and Freddie Mac condominium project-review standards increase the minimum replacement reserve allocation from 10% to 15%, subject to applicable exceptions and program requirements.

The calculation matters: Fannie Mae’s revised Full Review requirement is based on annual budgeted assessment income—not simply operating expenses. Boards should confirm the applicable calculation and review requirements with the lender and their professional advisers. These are mortgage eligibility standards, not a blanket legal requirement for every association.

Review Your Reserve Study and Budget

A qualifying reserve study may provide an alternative to the percentage-based allocation when the applicable lender requirements are satisfied. Under Fannie Mae’s updated reserve-study policy, the budget must include the highest recommended reserve allocation in the study; baseline funding that allows reserves to approach zero is no longer acceptable. A study’s existence alone does not establish that a lower contribution qualifies.

Why This Matters

Failure to meet applicable reserve funding requirements may affect the marketability of units in the community. In particular, non-compliance may interfere with a purchaser’s ability to obtain conventional mortgage financing. Associations should review their budgeting and reserve funding practices well before the effective date.

Associations with fiscal years that do not follow the calendar year should pay particular attention to timing. The referenced effective date applies to loan applications, so an association should not assume it can wait until its next fiscal year. Depending on its circumstances, an amended budget or other planning steps may be appropriate.

Understanding the Illustrative Budget

The illustration above shows one example—not a community-specific recommendation. Annual assessment income is $628,235.29, and the replacement reserve contribution is $94,235.29, or 15% of assessment income after rounding. With $15,000 in other revenue and $549,000 in operating expenses excluding reserves, total revenue and total expenses plus reserves both equal $643,235.29.

The sample has been adjusted to use assessment income as the calculation basis and to maintain a balanced budget. Actual assessments and reserve contributions should be based on your association’s needs, reserve study, governing documents, and applicable lending criteria.

Recommended Next Steps for Boards

• Review the budget — Confirm the reserve allocation and the income basis used to calculate it.
• Check the reserve study — Review its currency, qualifications, and funding recommendations with the appropriate professionals.
• Discuss adjustments — Consult the association’s accountant, reserve professional, lender, and legal counsel as appropriate.
• Plan ahead — Consider the fiscal year and whether budget action is needed before January 4, 2027.

How Premier Property Management Can Help

Premier Property Management can assist boards with reviewing current reserve contributions, coordinating budget planning discussions, and identifying questions to raise with their reserve professional, accountant, lender, or attorney. Boards should obtain professional guidance about how the applicable standards affect their specific community.

Ready to review your association’s budget? Contact our team or call 860-523-0157.

Sources and Important Notes

• Fannie Mae Lender Letter LL-2026-03: Project Standards Updates
• Freddie Mac Guide Section 5701.5: January 4, 2027 revision

This resource provides general educational information, not legal, accounting, or lending advice. Requirements, exceptions, and implementation dates may change. Confirm current standards and their applicability with the relevant lender and qualified advisers.