Reserve fund

What the reserve fund actually pays for

An association typically runs two funds. The operating fund pays for the things the community uses today: landscaping, utilities, insurance premiums, management fees, payroll, pool chemicals. The reserve fund pays for the things the community will need tomorrow: roof replacement, asphalt resurfacing, pool resurfacing, elevator modernization.

The two funds are kept apart through fund accounting, a system built specifically to isolate money that is restricted to a purpose from money that is not. That separation is what stops reserve cash from quietly covering an operating shortfall, and it is also why a board member who says "it's all the association's money" is missing how the books are meant to work.

A big balance is not the same as fully funded

"Percent funded" compares the reserve's current cash to the total future obligation identified in the association's own reserve study, not to any fixed dollar figure. A reserve fund holding $400,000 can look healthy on a balance sheet and still be badly underfunded if the roof, the pool, and the elevator are all due for replacement in the same five-year window.

There is no universal target percentage to aim for; what counts as adequate depends on the association's own reserve study and, often, its governing documents or state law. Ask to see the reserve study itself, not just the fund's balance.

Mortgage lenders have their own minimum

Reserve funding is not only an internal decision. Fannie Mae will not treat a condo or co-op project as eligible for standard financing unless the annual budget allocates a minimum share of assessment income to reserves.

Lenders "divide the annual budgeted replacement reserve allocation by the association's annual budgeted assessment income," and that result must currently be "at least 10% of the budget."

Source: Selling Guide, B4-2.2-02, Full Review Process, Fannie Mae

For loan applications dated on or after January 4, 2027, that minimum rises to 15%. An association can use its own reserve study instead of the flat percentage if the study was completed within three years of lender approval, funding the study's highest recommended allocation instead. This is a mortgage-eligibility rule, not a law, but a budget that falls short of it can make units harder to sell or refinance.

Who decides how the reserve is funded and used

Whether a reserve study is required at all, how it must be funded, and whether the board may move money between operating and reserve funds vary by state and by the association's governing documents. Check your bylaws and your state's HOA or condominium statute before assuming either answer.