For board members, this isn’t just a financial detail—it has real implications for buyers getting loans on units, property values, marketability, and owner equity.
The New 15% Reserve Funding Expectation
One of the most important changes is the shift away from the long-used “10% rule.”
What’s changing:
- Associations are now expected to contribute at least 15% of total annual assessment income to reserves.
- Formally effective August 3, 2026 but can be implemented immediately by lenders – With respect to reserve studies and funding, Associations will need to be able to verify that their budgets reflect the “highest recommended reserve allocation” as specified in the reserve study. Note, following the baseline funding method described in a reserve study will not be accepted.
- Effective January 4, 2027 – Associations must contribute a minimum of 15% of the annual budgeted assessment to reserves for capital expenditures and deferred maintenance. This is up from the current requirement of 10% funding.
Why this matters:
- Lenders are increasingly requiring a full financial review of the association.
- If your budget does not meet this threshold, your community may be flagged as ineligible for conventional financing.
Impact on owners:
- Fewer eligible buyers
- More difficult refinancing
- Potential downward pressure on home values
The End of “Baseline Funding”
Equally important is how lenders evaluate your reserve funding strategy.
What’s changing:
- “Baseline funding” (keeping reserves just above zero) is no longer viewed as acceptable.
- Lenders now expect associations to follow the recommended funding plan from a professional reserve study, particularly the stronger or more conservative funding models.
Reserve study requirements:
- Must be updated within the past 36 months
- Must support the association’s funding decisions
Why this matters:
- Budgets that underfund reserves—even if technically balanced—may now fail lender review.
What This Means for Your Board
Boards that have historically kept dues low by minimizing reserve contributions are facing a new reality:
- Underfunding reserves can make units harder to sell
- Buyers may be unable to secure conventional loans
- Owners may face larger special assessments later
In short, reserve funding is no longer just a budgeting choice—it is a financing eligibility issue.
Recommended Action Steps for 2026
1. Check your reserve contribution
- Are you allocating at least 15% of your total budget to reserves?
2. Review your funding strategy
- Are you following a under funding reserves, or a funding plan aligned with your reserve study recommendations?
3. Update your reserve study
- Ensure it has been completed or updated within the last three years
4. Plan for gradual adjustments
- If you are below recommended levels, consider a phased increase in dues rather than delaying action
To continue to have a large pool of potential buyers for condominium units, it is critical that managers, board members and homeowner leaders take reasonable steps to try to avoid having an association declared ineligible for failing to attain standards which are within board control. Given the changing standards outlined here and the 2026 housing market, now is a great time to be proactive on these matters.
