Why reserve funds matter for more than just repairs
Reserve funds have always been about planning for the big-ticket items—roofs, elevators, pavement, and other major repairs that don’t come up every year. Without adequate reserves, boards are forced to levy special assessments or take out loans, both of which hit owners’ wallets and can create tension in the community. But the stakes are higher now. The health of your reserve fund is directly tied to whether buyers can get mortgages, and that means it’s tied to your property values.
Fannie Mae and Freddie Mac now scrutinize reserve fund health before approving mortgages in condo buildings — what Florida boards need to know
In the past, lenders might have asked for a budget or a reserve study, but the process was often routine. That’s changed. Fannie Mae and Freddie Mac, the two government-backed mortgage giants, have tightened their requirements for condo loans. They now require detailed documentation of reserve funding and may deny loans in buildings with inadequate reserves or deferred maintenance.
If your association’s reserves are underfunded, or if you’ve deferred major repairs, buyers may find themselves unable to secure financing—even if they have perfect credit. Lenders want to see that your board is setting aside enough money each year to cover future repairs, and that you’re following through on required maintenance. If you can’t provide this documentation, or if your reserve study shows a shortfall, expect loan denials and delayed closings.
Fannie Mae’s current guidelines require that at least 10% of the association’s annual budget be allocated to reserves, and they may request a copy of the most recent reserve study. If your budget doesn’t meet this threshold, or if your reserve study is outdated or incomplete, lenders may flag your building as ineligible for conventional financing. Freddie Mac has adopted similar standards, and both agencies are paying closer attention to buildings in Florida after recent high-profile structural failures.
The ripple effect: how underfunded reserves stall sales and hurt property values
When buyers can’t get loans, units sit on the market longer. Sellers may be forced to lower prices or accept cash offers at a discount. Over time, this can drag down property values for everyone in the building. Even owners who aren’t planning to sell feel the impact, as appraisals and refinancing become more difficult.
Transparency is also a factor. Florida law requires associations to disclose reserve fund balances to prospective buyers, and the American Institute of Certified Public Accountants requires disclosure in financial statements. If your reserves are low, buyers and their agents will know—and so will lenders.
What Florida law requires (and what’s changed since 2024)
Florida’s reserve fund requirements have tightened in recent years, especially for condo buildings three habitable stories or higher. For buildings three habitable stories or higher, a Structural Integrity Reserve Study (SIRS) is now mandatory at least every ten years, and the results must be factored into your budget. For budgets adopted on or after December 31, 2024, associations that must have a SIRS can no longer waive or reduce reserve funding for the items it covers.
If your association fails to comply, you risk fines, legal penalties, and—most importantly—loss of mortgage eligibility for your owners. Boards that ignore these requirements may also face liability if non-compliance results in harm to residents or financial losses.
How to get your reserve fund back on track
If your reserves are underfunded, it’s not too late to act. Here’s a practical approach:
- Commission a reserve study (or update your existing one).
A professional reserve study will assess the condition of your building’s major components and estimate the cost and timing of future repairs. This is the foundation for a compliant budget and for satisfying lender requirements.
- Build reserves into your annual budget.
If your association must have a SIRS, Florida law requires reserves for the items it covers to be funded based on that study. This means setting aside enough each year to cover anticipated repairs, not just plugging a number into the budget.
- Communicate with owners.
Explain why reserve funding is critical—not just for repairs, but for protecting property values and enabling sales. Owners may not like higher dues, but they’ll like unsellable units even less.
- Keep documentation up to date.
Maintain clear records of your reserve study, annual budgets, and reserve fund balances. Be ready to provide these to lenders, buyers, and regulators on request
- Consider a phased funding plan if you’re behind.
If your reserves are significantly underfunded, work with your reserve specialist and legal counsel to develop a catch-up plan that meets legal requirements and is manageable for owners. Some associations adopt multi-year funding increases to avoid sudden, steep assessments.
The bottom line: reserve funding is now a sales issue
Boards that treat reserve funding as a technicality are putting their owners’ investments at risk. The new reality is that underfunded reserves can block sales, lower property values, and create legal headaches. The good news: with the right planning and communication, your board can turn this around.
If your board is facing tough questions about reserves, or if you’re not sure where your building stands, CA’s team can help you get clarity and build a plan that protects your community’s future.
