The most recent changes to condo lending guidelines have garnered many discussions and questions regarding lending and reserve funding requirements. Across the industry, we have heard varying interpretations of how reserve study funding recommendations relate to Fannie Mae’s budgeted reserves funding thresholds, particularly the new 15% reserve requirement* used for mortgage eligibility.
To address these questions, Reserve Advisors and Jodi Horne, a Principal at Fannie Mae, recently discussed this topic and Fannie Mae’s policy on single-family mortgage eligibility.
Does a Reserve Study Override the 15% Reserve Funding Requirement?
No. A reserve study does not override Fannie Mae’s 15% reserve funding requirement for mortgage eligibility. If an association budgets at least 15% of their annual assessment income toward reserves, it is not required to fund at the reserve study’s recommended level to maintain eligibility.
“If the budget shows the association plans to reserve 15% or more of their annual budgeted assessment income, the association is not required to fund reserves at the study’s recommended level to maintain mortgage eligibility with Fannie Mae. The reserve study only comes into play when the association’s budget is less than the required amount, and it can demonstrate that the project has sufficient reserves at that lower level.” – Jodi Horne
This guidance distinguishes the mortgage eligibility budgeted requirements from reserve study recommendations. While reserve studies may recommend higher funding levels based on long-term capital planning needs, meeting the 15% threshold satisfies Fannie Mae’s requirement for mortgage eligibility.
Should an Association Still Obtain a Reserve Study if It Meets the 15% Requirement?
Yes. Associations should still obtain a reserve study even if they are meeting the 15% reserve funding threshold. A reserve study is not required for mortgage eligibility, but it remains a widely recognized long-term financial planning tool.
“While Fannie Mae does not require a reserve study to demonstrate budgeted reserves are sufficient, a reserve study is a very useful planning tool that helps create transparency for owners into the physical condition and financial needs of their project. It is a best practice for associations to obtain a quality reserve study and follow the funding and maintenance recommendations provided by the analyst to mitigate risks related to critical repairs and financial deficiencies that may result in large special assessments.” – Jodi Horne
Reserve studies provide visibility into long-term repair and replacement needs and support more informed financial planning. They remain widely recognized as a best practice for reducing the risk of deferred maintenance and unexpected special assessments.
Key Takeaway
Reserve studies and condo lending guidelines serve different, but complementary purposes.
Lending requirements establish minimum standards for mortgage eligibility, while reserve studies provide a framework for long-term financial planning and asset management. Understanding both helps boards make more informed funding decisions.
*Note: The current Fannie Mae budgeted reserves requirement is 10% of the project’s annual budgeted assessment income. This amount increases to 15% for new loan applications beginning January 4, 2027.