Typically, accountants tell HOA boards they should have three months’ operating expenses on hand in reserve. In our opinion this is poor advice as the amount is based on what the actual needs are. The amount a home owners association needs is very dependent on the major components, their useful life and location. That is why a reserve study is required for most home owner association’s in Washington State. Even small HOA’s should have a least one reserve study every few years to know how much they need to maintain their assets.
There isn’t any legal requirement in Washington State for a minimum reserve fund amount per se. However, most banks who make loans to co-ops and condos recommend that corporations and associations follow Federal National Mortgage Association (FNMA, also known as ‘Fannie Mae’) guidelines, which require a 10 percent reserve as a line item in their annual budget.