As Board Members prepare to finalize their association’s 2027 budget, an important change to Fannie Mae and Freddie Mac mortgage requirements deserves attention. Reserve funding decisions can affect both the community’s long-term financial health and homeowners’ access to financing when selling or refinancing their homes.

Effective January 4, 2027, the minimum annual reserve allocation increases from 10% to 15% of annual budgeted assessment income for condominium projects subject to the applicable budget review requirements. Fannie Mae applies this change to loan applications dated on or after January 4, 2027, under its Full Review process; Freddie Mac applies it to mortgages with application received dates on or after that date. These changes are mortgage eligibility requirements, not a blanket reserve funding mandate for every homeowners association.

For Boards, this means the proposed 2027 budget should clearly identify the association’s annual reserve contribution and account for the applicable requirements before adoption.

Why Reserve Funding Matters to Homeowners

A buyer’s mortgage approval depends on more than personal income and credit qualifications. Lenders also evaluate the community’s financial condition and physical maintenance to determine whether the project meets mortgage eligibility requirements.

Inadequate reserve funding may affect eligibility for financing backed by Fannie Mae or Freddie Mac, potentially delaying or preventing a buyer’s loan approval and disrupting a sale. Lenders also review significant deferred maintenance, unsafe conditions, and special assessments.

Although these are mortgage eligibility requirements, they have practical implications for association budgeting and homeowners’ ability to complete real estate transactions.

Understanding the Reserve Study Alternative

A qualifying reserve study may provide an alternative to the 15% allocation requirement. However, simply having a reserve study does not automatically satisfy the lender’s review.

To rely on this alternative, lenders must verify that the association’s budget includes the study’s highest recommended reserve allocation. Baseline funding is no longer permitted under this alternative. Boards
should work with their reserve professional and confirm the applicable requirements with the lender before assuming their funding plan qualifies.

The percentage requirement also should not replace an evaluation of the community’s actual reserve needs. An association’s recommended contribution may exceed 15% based on its components, anticipated repairs, and replacement costs.

Preparing Your Association’s 2027 Budget

Boards should address the following items with management before adopting the budget:

• Evaluate the annual reserve contribution: Clearly identify the contribution in the proposed budget and assess it against the applicable percentage based requirement or qualifying reserve study alternative.
• Review the reserve study and funding plan: Confirm that the study reflects current conditions and determine whether funding adjustments are needed.
• Maintain accessible records: Keep budgets, reserve studies, financial statements, maintenance records, and repair documentation current and available for lender review.
• Consult the appropriate professionals: Coordinate with the association’s reserve professional, attorney, and lender as appropriate to understand how the requirements apply to your community.

Proactive planning allows Boards to address funding concerns before they become obstacles during a homeowner’s sale or refinance. Reviewing these requirements now can support informed budget decisions, responsible maintenance planning, and clearer communication with homeowners.

Meeting the reserve allocation requirement alone does not guarantee loan approval. Lenders must evaluate the project and borrower under all applicable requirements.

For questions related to 2027 budget planning, reserve funding, and the new mortgage reserve requirements, please feel free to email your Community Manager.