The basics

What does this mean?

Every condo building has an HOA (homeowners association) that collects monthly dues from owners. Part of those dues goes into reserves: savings for big, predictable repairs like a new roof, elevators, plumbing or repainting.

Reserve studyA report that lists the building’s major parts, estimates how long each will last and what it will cost to replace, and recommends how much the HOA should save every year.

In California, many associations must have a reserve study with a visual inspection at least every three years, and the board must review it every year.

Two numbers matter most:

Percent funded: how much the HOA has saved compared with what the study says it should have by now.
The funding plan: whether dues are expected to rise, and by how much.

Special assessmentAn extra bill the HOA charges every owner when savings don’t cover a repair. It can be a one-time payment or added to your dues for a few years.

Lenders care too. Fannie Mae, for example, generally looks for a budget that sets aside at least 10% for reserves, and it won’t buy loans in buildings with unaddressed critical repairs until they’re completed.

Most important

What are your options?

A thin reserve fund doesn’t automatically mean you should walk away. It means you should price it in and choose the right loan.

Due diligence

Read the documents before you remove contingencies

The seller provides the HOA documents during escrow. Read the reserve study, budget, recent board minutes and any inspection reports while you can still renegotiate or cancel.

Negotiation

Ask the seller to cover a known assessment

If a special assessment is already approved, you can ask the seller to pay it off, lower the price, or give a credit. Learn how seller credits work.

Conventional · FHA · VA

Warrantable condo financing

If the building meets agency guidelines, you can use a standard loan. FHA and VA have their own condo approval rules, and some units may qualify through FHA’s single-unit approval.

Non-QM · Portfolio

Non-warrantable condo loan

When a building doesn’t meet agency rules, some lenders still finance it. Expect a larger down payment and a higher rate, and know that each lender sets its own standards. See Non-QM loans.

Worth knowing: some buildings with unsafe conditions aren’t financeable anywhere until repairs are done.

Planning

Budget for higher dues

If the study recommends bigger contributions, assume your dues will rise and qualify with that higher number in mind.

The numbers

Let’s look at an example

You’re looking at a unit in a 40-unit building. The reserve study says the HOA should have $1,200,000 saved by now. It actually has $360,000.

Reserve health check

Recommended reserves$1,200,000

Actual reserves$360,000

Percent funded30%

If the gap were billed to owners

Shortfall$840,000

Split across 40 units$21,000 each

Or spread over 5 years$350/mo

What this means: a 30% funded building isn’t necessarily headed for a $21,000 bill. But if the roof is due soon, you could see an assessment or a dues increase. An extra $350 a month also counts against your DTI (debt-to-income ratio), so it can lower how much home you qualify for.

Assumptions: hypothetical building. Real costs depend on which repairs are due and when, and the board decides how to fund them. $840,000 ÷ 40 = $21,000; $21,000 ÷ 60 months = $350, before any interest or inflation. Check your full payment with the mortgage payment calculator.

From Derek

What would I do?

Before you fall in love with the unit, I’d read the reserve study, the budget and the last year of board minutes. I want to know the percent funded, which big repairs are coming in the next few years and whether an assessment is already in the works. Then I’d match the building to the right loan, whether that’s conventional, FHA or a non-warrantable option, and run your payment with realistic future dues.

Derek VailMortgage Broker · NMLS #1233953

Your move

What should you do next?

Ask for the HOA documents early. Reserve study, budget, minutes, insurance and any inspection reports.
Find three numbers: percent funded, upcoming major repairs and any approved special assessment.
Text me the building address. I’ll check which loan options fit that project before you remove your contingencies.

Mortgage payment calculatorInclude HOA dues in your monthly payment Non-QM loansOptions for non-warrantable condos

Condo buyers: read the reserve study.