Two numbers that tell a board whether its reserves are enough

It comes up at every budget meeting. Somebody asks whether the reserve account is big enough, somebody else says it looks like a lot of money, and the board moves on without an answer. There is an answer, but it is not a dollar figure and it is not a percent of the budget. It is two numbers, and you can work out both from a list of what the association will have to replace.

The short answer

An HOA has enough in reserves when two things are true:

1. The account covers most of the wear so far. Reserve specialists measure this as percent funded. Association Reserves, one of the largest reserve study firms, calls 70 percent or more strong, 30 to 70 percent fair, and under 30 percent weak.
2. What goes in each year keeps the account above zero for the next thirty years, paying for each replacement as it comes due, if the estimates hold.

The first number says where you stand. The second says whether you will stay there, which is why the national standards for reserve studies say percent funded alone does not tell you whether reserves are adequate. A community can be well funded today and still be putting in too little for the roofs it will replace in eight years.

The bands matter because of what happens below them. Across more than 40,000 studies, Association Reserves found that associations under 30 percent funded levy a special assessment almost every other year, and those between 30 and 70 percent about once every eight years. Most associations are not in the strong band. In the firm's 2026 data, 34 percent were weak, 40 percent fair and 26 percent strong, and the firm says its own clients may be better prepared than most.

Number one: how much of the wear you have saved for

Everything the association replaces wears out a little every year. A roof that lasts twenty years and costs $60,000 uses up $3,000 of itself a year, so after twelve years, $36,000 of it is gone. Do that for everything you maintain, multiplying today's cost by the share of its life already used, and add the results. That is the amount the reserve account would hold if it had kept pace with the wear, and reserve specialists call it the fully funded balance.

Here it is for a small community with three things to replace, the same example we used in our guide to the reserve study:

The wear comes to $70,000, and 70 percent of that is $49,000. So this community should have between $49,000 and $70,000 in its reserve account today. With $35,000 it is 50 percent funded, which is fair: not an emergency, and not a cushion either.

Number two: what to put in each year

There are two ways to work this out, and they answer slightly different questions.

The wear rate. Divide each item's cost by its life and add them up: $3,000 a year for the roofs, about $1,670 for the pool and $1,600 for the paving, about $6,270 a year in all. That is what the property uses up every year whether anybody writes a check or not. Putting in less than that means the account falls further behind the wear every year.

The cash flow. Lay the replacements out by year and find the least you could put in each year without the account ever going below zero. In our example the pool comes due in 2032, the roofs in 2034 and the paving in 2036, and what you need depends on what you start with:

Read down the last column. Every dollar the account does not have today has to be found later, and sooner than most boards expect, because in a community built all at once the big items tend to come due in the same few years. The community with $15,000 has to put in more than twice what the fully funded one does, for the same roofs.

Those figures are the least the account can take in without running dry, which reserve specialists call baseline funding. The national standards call it the riskiest goal, because the balance is allowed to come close to zero, and one early roof or one high bid turns into a special assessment. Two safer goals put in more. Threshold funding keeps the account above a floor the board chooses, such as a dollar amount or 30 percent funded. Full funding works toward 100 percent, and once you are there, staying there means putting in about the wear rate each year.

All of these figures are in today's prices, with no inflation and no interest earned. A reserve study adds both, which is one reason its recommendation will not match arithmetic like this to the dollar. Neither one is wrong; they answer the question with different assumptions.

The rules of thumb you will hear

"Put 10 percent of the budget into reserves." This one comes from mortgage rules, not from any measure of what an association needs. For most condominiums, Fannie Mae and Freddie Mac will only buy a mortgage if the association's budget sets aside at least 10 percent for reserves, and for loan applications from January 4, 2027, both raise that to 15 percent. Neither applies a budget test to a planned community of houses or townhomes. Association Reserves' data puts adequate funding at 15 to 45 percent of the budget in 2025, and the firm warns against treating any fixed percentage as a target.

The trouble with any percent of the budget is that the budget does not know how old your roofs are. Two communities with the same dues can need reserves tens of thousands of dollars apart: one whose homes are five years old, and one whose paving, roofs and pool all come due in the same three years. The list of what you will replace, and when, is the only thing that tells them apart.

What the law requires

Most states do not require an HOA to have a reserve study or to fund reserves. These do, for HOAs as well as condominiums:

Several more states set reserve rules for condominiums only, among them Delaware, Hawaii, Illinois, Massachusetts, Michigan, Minnesota, Ohio and Tennessee. Laws change, and the summaries above leave out exemptions and deadlines, so read your own state's statute or ask an attorney before relying on any of it.

Georgia, where our community is, has no reserve requirement for HOAs or condominiums. Both the Property Owners' Association Act and the Condominium Act treat reserves as a common expense only when the association's own documents provide for them, so read your declaration and bylaws. The new Property Owners' Bill of Rights, most of which takes effect on January 1, 2027, lets owners inspect three years of budgets, balance sheets and bank statements, so the reserve question will come up at more annual meetings, not fewer. More on Georgia's new HOA law.

If your reserves are short

Every way of paying for a big repair costs something. Association Reserves worked one example: a $250,000 roof paid from reserves saved over time cost the owners $231,823, because the account earned interest while it waited. The same roof cost $250,000 by special assessment and $320,071 with a bank loan.

So the cheapest fix is the slowest one: raise the yearly contribution now, in steps if you have to, and let time do the work. If a replacement is close and the money is not there, the choices are a special assessment, a loan, or putting the work off. Read your documents before you choose, because they may limit special assessments, and so may your state; California, for one, requires a vote of the members for any special assessment over 5 percent of the year's budgeted expenses. Putting work off is the choice that looks free and is not. A roof that waits too long becomes a ceiling, a wall and an insurance claim.

Whichever you choose, put the numbers in front of the owners. A dues increase with the list of what is coming, and when, is a decision. Without it, it is an argument.

How we work it out

The Big repairs ahead page in neighborPOP does both numbers. It counts what is due on every home from the year the homes were built and the replacements you have recorded, prices each item from what your association has paid, and adds the things that are not on every home, like the pool or the entrance sign. Type in the reserve balance from the bank statement and it answers in one sentence: how much to put away each month so the account never runs dry, what that is for each home, and how much of the wear so far you have saved for. It is arithmetic in today's prices, not a reserve study, and it says so. If the numbers are large, it is telling you a study is overdue. More on how the planner works, and on what a reserve study is and what it costs.

Sources

Percent funded and the funding goals: the Community Associations Institute's Reserve Study Standards and the APRA Standards of Practice. Strength bands, special assessment rates and funding data: Association Reserves, in its April 2026 industry report and its study of special assessments. Lender rules: the Fannie Mae Selling Guide, B4-2.2-01, and Freddie Mac Bulletin 2026-C. State requirements: the statutes named in the table, read in October 2026.