Lenders Getting Tough Lending on Condo Associations Without Proper “Reserves”
2026
Condo owners usually pay a monthly homeowner’s association (HOA) or maintenance dues. These assessments cover building upkeep, utilities, hazards insurance and fees for a property manager, doorman or managing agent. Most HOAs put money into a reserve account to cover unforeseen expenses (leaky roofing, replacing carpets in common areas or to fix the elevator).
Depending on the size of the building and the HOA, the amount in a reserve fund can be anything from a few thousand dollars to hundreds of thousands. It’s standard practice for a lender to review the HOA’s budget before lending on a buyer’s condominium. They want to be assured that the association is healthy and that their investment is sound. For example, lenders won’t lend if a building has too many tenant occupied units or if one person owns too many units in the building.
From time to time, a big issue arises with an individual lender and a condo association. As agents, we have scrambled to work with the seller, the buyer and the HOA to do what we could to get the condo to a place where it could be approved. Many times, this meant changing lenders and extending the escrow to allow time for a new appraisal and approval. Since the beginning of the credit crisis, when lending standards started tightening, this type of quick maneuvering and creative work has become commonplace among agents.
However, recent changes to Fannie Mae and Freddie Mac lending guidelines require HOAs to have 10% of the annual budget in a reserve fund. And, many times, they ask to see the 10% as a separate line item of the HOA’s budget.
Imagine if you’re buying into a large condo project in New York. Trying to get the managing agent and the HOA to make such a major change to the way they do their budget is nearly impossible. Or better yet, imagine a small, four-unit HOA in San Francisco that purposely keeps its HOA dues low, choosing to pay for needed repairs as they come instead.
This issue has just started to come up and it’s definitely getting in the way of many real estate purchases. So, if you’re in the market to buy a home and a condo is your targeted path, start communicating with your mortgage broker or lender early on in the process. It wouldn’t even hurt to ask for a copy of the budget before making your offer. That way, you can eliminate a lot of stress and headache down the road.
