Selling Guide

Published June 02, 2021

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What are the requirements for an HOA budget under the Full Review process?

When determining the eligibility of a condo project on the basis of a Full Review, lenders must review the HOA projected budget to determine that it

  • is adequate (i.e., it includes allocations for line items pertinent to the type of condo project), and
  • provides for the funding of replacement reserves for capital expenditures and deferred maintenance that is at least 10% of the budget.

To determine whether the association has a minimum annual budgeted replacement reserve allocation of 10%, the lender must divide the annual budgeted replacement reserve allocation by the association’s annual budgeted assessment income (which includes regular common expense fees).

The following types of income may be excluded from the reserve calculation:

  • incidental income on which the project does not rely for ongoing operations, maintenance, or capital improvements;
  • income collected for utilities that would typically be paid by individual unit owners, such as cable TV or Internet access;
  • income allocated to reserve accounts; and
  • special assessment income.

The lender may use a reserve study in lieu of calculating the replacement reserve of 10% provided the following conditions are met:

  • the lender obtains a copy of an acceptable reserve study and retains the study and the lender’s analysis of the study in the project approval file,
  • the study demonstrates that the project has adequate funded reserves that provide financial protection for the project equivalent to Fannie Mae’s standard reserve requirements,
  • the study demonstrates that the project’s funded reserves meet or exceed the recommendations included in the reserve study, and
  • the study meets Fannie Mae’s requirements for replacement reserve studies listed in B4-2.2-02, Full Review Process.

For projects in which the units are not separately metered for utilities, the lender must

  • determine that having multiple units on a single meter is common and customary in the local market where the project is located, and
  • confirm that the project budget includes adequate funding for utility payments.

For additional information, see B4-2.2-02, Full Review Process.

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