What is a Healthy Reserve Balance?
We get this question in our office all the time – do we have enough money in reserves? HOA or Condominium associations need to keep track of how much money they have on hand at all times. This helps ensure that there will always be enough cash available for major projects, unexpected repairs and other emergencies. Every association is different and there is no single answer. Associations that are waterfront are going to need more maintenance that an inland association. Associations that have assets such as elevators or swimming pools are going to have higher long term expenses. Pacific Crest Reserve considers between 60%-80% percent funded as healthy reserves
Know Your Community’s Needs.
It’s important for HOA or Condominium associations to understand what their community needs before making any decisions regarding reserves. If an area has experienced flooding or earthquakes, then it might make sense to set aside extra reserves for emergency repairs. The best way to determine the monies needed is to have a Level 1 reserves study and then keep it current.
Fannie Mae Freddie Mac
In spring of 2022 Fannie Mae Freddie Mac gave loan underwriters guidance to ensure the properties they are giving loans on have appropriate funding. The easiest way to prove this is to see if the sellers disclosure includes a reserve study. If the association does not provide this then Fannie Mae Freddie Mac will want to see that 10% or more of the monthly dues are going into reserves.
