HOA topic guide

What are HOA reserve funds and how much should the association have?

Reserve funds are savings set aside by the association to pay for the eventual replacement of major common elements — roofs, parking lots, elevators, pool equipment, painting, fencing, and similar capital assets that depreciate over time. Unlike operating funds (which cover recurring expenses like landscaping, management, and utilities), reserve funds are legally segregated, held in separate bank accounts, and may only be used for reserve-eligible capital expenditures. A well-funded reserve is one of the clearest indicators of a financially healthy association, and chronic underfunding — which is genuinely common across the industry, with the average condominium funded at just 39% according to recent studies — shifts the burden onto future owners in the form of unexpected special assessments, deferred maintenance, and ultimately collapsing property values. The 2021 Surfside, Florida condominium collapse, which killed 98 people, was substantially attributable to decades of deferred maintenance and inadequate reserves; the resulting legal and regulatory response in Florida and elsewhere has dramatically tightened reserve requirements. Prospective buyers should review reserve funding status as part of due diligence; in many states, the association must disclose reserve fund status, the most recent reserve study, and any pending special assessments to buyers on request, and lender underwriting (Fannie Mae, Freddie Mac) increasingly requires reserves of at least 10% of the annual budget for a condominium project to be lender-warrantable. The most important reserve metric is the 'percent funded' figure: current reserve cash balance divided by the fully-funded target from the most recent reserve study. Below 30% is critically underfunded; 30-70% is weak; 70-100% is well-funded; above 100% is fully funded. Boards that allow funded percentage to drop below 30% are increasingly facing fiduciary-duty claims from owners.