A homebuyer nearly finalized a condo purchase before learning its homeowners association held only 1% in cash reserves. The discovery raised concerns about the building’s financial stability.
Many buyers focus on location, price, and amenities when shopping for a condo. Few examine HOA financial statements until late in the process, if at all.
Cash reserves cover major repairs like roofs, elevators, and plumbing. A reserve level of 1% leaves little cushion for unexpected costs or planned maintenance.
Low reserves often signal deferred maintenance or poor budgeting by the HOA board. Buyers may face special assessments to cover shortfalls after closing.
Special assessments can reach tens of thousands of dollars per unit. These charges come on top of regular monthly HOA dues and mortgage payments.
Lenders also scrutinize HOA finances before approving a mortgage. A weak reserve ratio can delay or derail financing, especially for conventional loans.
Buyers should request HOA budgets, reserve studies, and meeting minutes during due diligence. These documents reveal how well the association manages its funds.
A healthy reserve fund typically covers at least 10% of the annual budget. Some experts recommend 30% or more for older buildings with aging infrastructure.
State laws and lending guidelines set different reserve requirements. Fannie Mae and Freddie Mac, for example, impose strict rules on condo project eligibility.
The buyer in this case walked away from the deal. Her experience highlights the value of reviewing HOA finances before committing to a purchase.
