Condo Reserve Fund Standards:
Minimum Reserve: While a 10% rule of thumb exists, Fannie Mae and Freddie Mac now require a minimum reserve amount based on a reserve study conducted by a qualified professional. This study analyzes the condo’s components, remaining useful life, and projected repair costs.
Funding Plan: The reserve study should also include a funding plan outlining how the association will reach and maintain the minimum reserve level.
Additional Requirements:
- Delinquency Rate: Similar to the past, Fannie Mae and Freddie Mac may restrict financing if the delinquency rate for homeowner assessments exceeds 15%.
- Critical Repairs: They also prohibit financing for condo projects with unfunded repairs exceeding $10,000 per unit.
- Benefits of a Healthy Reserve Fund:
- Protects Against Special Assessments: A well-funded reserve helps avoid unexpected large assessments for repairs.
Smoother Budgeting: Predictable assessments make budgeting easier for condo owners.
Increased Marketability: A healthy reserve strengthens the condo’s financial health, making it more attractive to buyers and lenders. - Factors Affecting Reserve Needs:
- Inflation: Reserve contributions need to increase to account for inflation’s impact on future repair costs.
Complex Age: Newer buildings may require lower reserves initially, but they rise as the complex ages and components need replacement.
The Bottom Line:
While a specific monthly assessment amount isn’t mandated, Washington state condo associations subject to Fannie Mae/Freddie Mac guidelines in 2024 must prioritize building and maintaining a healthy reserve fund based on a professional reserve study. If the association is not doing this or ignored reserve requirements then the loan underwriters may not approve a loan on this property. Associations that have a reserve study and are following it demonstrate financial stability. Associations that meet Fannie Mae/Freddie Mac guidelines are more likely to be approved by mortgage underwriters.
