The 15% Condo Reserve Rule: What Condo Buyers Need to Know

Buying a condo means buying into a building. The unit may be exactly what you want, with the right view, the right floor plan and the right address. The mortgage, though, depends on a budget you did not write and a board you have never met.

Starting with loan applications dated January 4, 2027, Fannie Mae and Freddie Mac will require a higher reserve contribution from condominium associations. The budget must set aside at least 15% of annual assessment income for replacement reserves. The prior minimum was 10%. A building that budgets less, and cannot support the shortfall with a qualifying reserve study, falls outside conventional condo financing for every buyer in it.

Many well-run buildings in San Diego, Los Angeles, Austin, Miami, Chicago, Charlotte and Denver already clear the bar. Many others sit at or near the old 10% floor, and their budgets will not change on their own. For buyers in those buildings, a Non-QM condo loan follows the lender's own project standards rather than the agency rule, with jumbo loan amounts available for qualified borrowers.

The rule is simple. Knowing where a specific building stands before you write an offer takes a little work.

How the 15% Reserve Test Works

The test is a budget ratio, not an account balance. The lender takes the association's annual budgeted contribution to replacement reserves and divides it by the association's annual budgeted assessment income. Replacement reserves are the funds set aside for capital expenditures and deferred maintenance, such as roofs, elevators, exterior work, plumbing and parking structures. Under the new rule, that ratio must be at least 15%.

Certain income is excluded from the denominator before the division. Incidental income the association does not rely on for operations comes out. So does income collected for utilities that unit owners would otherwise pay individually, special assessment income and amounts already allocated to reserves. The exclusions matter because they can move a building from one side of the line to the other.

Consider an association that collects $1.2 million per year, of which $200,000 is a pass-through for bulk cable and internet. Its budget contributes $150,000 to reserves. Measured against total collections, the ratio is 12.5% and the building appears to fail. Measured against the $1 million of regular assessment income that counts, the ratio is 15% and the building passes. The arithmetic belongs to the lender, but a buyer can run it from the budget in an afternoon.

A building that budgets below 15% has a second path. The lender may rely on a reserve study instead. The study must be no more than three years old and prepared by an independent third party, and the budget must fund the highest reserve allocation the study recommends. A study built on a baseline funding method, where the reserve balance is allowed to approach zero, does not qualify. Associations that have been funding at a study's lower "threshold" recommendation will need to revisit the budget itself, not only the paperwork.

The reserve change follows an earlier one. Since August 3, 2026, both agencies have retired the limited and streamlined review options that once let many established buildings skip a budget review. Under the new condo rules, most purchases already involve a full look at the association's finances. The 15% floor raises the standard that full look applies.

What Happens When a Building Falls Short

A condo project that does not meet the agency reserve standard becomes what lenders call a non-warrantable condo, ineligible for conventional financing until it does. The consequence lands on the owners and buyers, not the association. A seller in that building loses most of the mortgage-financed buyer pool. A buyer under contract with a conventional approval may need to switch programs, renegotiate or walk away.

The fix is often smaller than it sounds. An association with $1 million in regular assessment income and a $120,000 reserve contribution sits at 12%. Reaching 15% requires $30,000 more per year. Spread across 100 units, that is $300 per unit per year, or $25 per month. Boards can adopt an amended budget at any time, and a buyer's lender can review the amended figures. Timing is the obstacle, since a board that meets quarterly may not act within a 30-day financing contingency.

Lender overlays add a second layer. Fannie Mae and Freddie Mac set the floor, and individual banks may apply stricter internal rules to condos, especially at jumbo loan amounts. One lender may decline a building that another approves with the same documents. A broker who arranges condo loans across many lenders can tell the difference between a building that fails the agency test and one that fails a particular bank's overlay.

When the building fails the agency test itself, two paths remain. One is a portfolio loan from a bank that holds its own condo loans. The other is a Non-QM loan from a lender whose project review is independent of Fannie Mae and Freddie Mac. Those lenders still examine the budget, the insurance, litigation and any special assessments. They are not bound to the 15% figure.

How to Check a Building Before You Write an Offer

You do not need to underwrite the association yourself, even though a condo mortgage is underwritten against the building as well as the buyer. You need three documents and ten minutes. Ask the listing agent or management company for the current annual budget, the most recent reserve study if one exists, and a statement of any pending or planned special assessments.

From the budget, locate the line for replacement reserves and the total regular assessment income, then compute the ratio the way the lender will. Note any income lines for cable, internet, laundry or other pass-throughs, because they come out of the denominator. If the ratio is below 15%, read the reserve study's funding recommendation and compare it to the budgeted contribution.

Then ask the questions the budget cannot answer. Has the building completed a structural or engineering inspection? Are major repairs under discussion? Has the master insurance policy been renewed on acceptable terms? Is the association in litigation? A recent sale in the building proves nothing about your financing, since the other buyer may have paid cash, used a different program or closed before a problem surfaced.

If the answers point toward a conventional problem, the time to know is before the offer. A Non-QM structure can then be priced into the decision rather than discovered at the appraisal.

Seven Condo Markets Where the Rule Will Matter

Each market below raises a different underwriting question. The examples are hypothetical, the figures are illustrations, and the payments assume a 30-year fixed rate of 7% solely for comparison. Approval depends on the program selected and the complete file.

San Diego: A $2.5 Million La Jolla Condo After Retirement

San Diego's coastal condo stock in La Jolla, Coronado and Point Loma includes many buildings from the 1960s through the 1980s. Salt air shortens the life of exterior systems, and reserve studies for these buildings often recommend contributions well above 15%. A building using the reserve study path must fund the highest recommended amount, which can exceed the flat percentage.

Consider a retired couple buying a $2.5 million condo in the Village of La Jolla with 30% down. The loan is $1.75 million. Principal and interest are approximately $11,643, and with property taxes, a $1,500 monthly association fee and a unit owner's policy, the housing payment is approximately $15,600. Association dues count in the ratio exactly as the mortgage payment does.

The couple holds $6 million in brokerage accounts and $2 million in retirement accounts. An asset depletion lender counts the retirement accounts at 70%, bringing eligible assets to $7.4 million, then subtracts the $750,000 down payment and approximately $150,000 for closing costs and reserves. The remaining $6.5 million divided by 84 months produces $77,381 of qualifying income, or $54,167 at 120 months. With $1,500 in other obligations, the ratio is approximately 22% under the first divisor and 32% under the second. Both may be approvable. The couple still needs the building to pass the lender's own project review. Jumbo loans in San Diego at this size are reviewed against the condo project as closely as the borrower.

Los Angeles: When the Reserve Study Cuts Both Ways

The high-rise corridors of Los Angeles, along Wilshire Boulevard, in Century City and near Marina del Rey, are dominated by towers built decades ago. Their elevators, plumbing risers and parking structures are reaching the end of their service lives. Rising master insurance premiums across Southern California have also consumed budget room that once flowed to reserves. A building budgeting 10% in 2024 may be budgeting 8% today without any board decision to cut reserves.

The reserve study path helps and hurts in equal measure here. A current study may show that 15% is not enough for a 1970s tower, and a lender relying on that study will require the budget to fund the higher figure. For a buyer, the practical question is whether the board has adopted the study's recommendation or merely received it. Jumbo loans in Los Angeles for a $3 million Wilshire Corridor unit may proceed conventionally if the building funds its study. If it does not, a Non-QM lender's independent review is the alternative.

Austin: A $1.5 Million Downtown Condo on Business Deposits

Austin's downtown towers, from Rainey Street to the Seaholm District to the Second Street corridor, are young by condo standards. Their budgets were often set by the developer at the old 10% minimum and have not been revisited. Some permit short-term rentals, which raises a separate eligibility question. Newer buildings with low reserve ratios are the ones most likely to stumble on the 15% test without any physical problem to show for it.

Consider a self-employed consultant buying a $1.5 million condo on Rainey Street with 20% down and a $1.2 million loan. Principal and interest are approximately $7,984, and with Travis County property taxes, a $1,200 association fee and insurance, the payment is approximately $11,500. The consultant's business deposited $1.2 million over the last 12 months. At a 50% expense factor, qualifying income is $50,000 per month. With $2,500 in other obligations, the ratio is 28%. A 24-month program averaging $2 million in deposits produces $41,667 per month and a ratio of approximately 34%. If the building's budget sits at 10%, jumbo loans in Austin through a bank statement lender with its own project standards may be the route that closes.

Miami: A $3 Million Primary Residence Without Income Documentation

Miami's condo market in Brickell, Edgewater and Miami Beach already operates under state law adopted after the Surfside collapse. Florida requires structural inspections and structural integrity reserve studies for older buildings three stories and taller, and limits an association's ability to waive reserves for structural components. Many South Florida budgets have already been rebuilt around those studies. Others carry special assessments that are excluded from the reserve denominator but still count against a buyer's affordability.

Consider an executive relocating to a $3 million Miami Beach condo as a primary residence, with 30% down and a $2.1 million loan. Principal and interest are approximately $13,971 before taxes, insurance and association dues, and in Miami the last two items deserve a careful quote. Through a no-ratio program for primary residences, the executive qualifies on credit, down payment and reserves rather than documented income, with loan amounts up to $4 million for qualified borrowers. The lender still reviews the building, and jumbo loans in Miami depend as much on the association's insurance and inspection history as on the borrower's file.

Chicago: Lakefront Towers With Large Budgets and Older Systems

Chicago's Gold Coast, Streeterville and Lakeshore East towers run some of the largest association budgets in the country. Illinois law requires associations to maintain reasonable reserves but sets no percentage, so a 600-unit building with a $9 million budget may contribute 8% and consider itself prudent. On January 4, 2027, the same building will need $1.35 million in annual reserve contributions to remain eligible for conventional financing. A current reserve study funded at its highest recommendation is the only alternative.

Boards of that size can amend budgets, but the process runs on an annual cycle, and the agency test keys off the loan application date. Buyers in the lakefront market may find that jumbo loans in Chicago for the next year or two depend on which buildings moved first. Asset depletion mortgages and bank statement loans through lenders with independent project standards keep those units financeable in the interim.

Charlotte: Small Projects and the Review Exemption

Charlotte's condo inventory in Uptown, SouthPark, Dilworth and Myers Park is newer and smaller than the coastal markets. Both agencies now allow condo projects of ten units or fewer, under certain conditions, to bypass the project review entirely. Many Charlotte buildings in Dilworth and Eastover fit that description. Those buyers will not meet the 15% test at all because the budget is never reviewed.

The exemption does not cover the larger Uptown towers, where budgets set during the 2010s construction wave often land at 10%. A buyer choosing between a six-unit building in Myers Park and a 300-unit tower on Tryon Street is also choosing between two financing standards. Jumbo loans in Charlotte for either property should begin with that distinction.

Denver: Insurance Pressure on the Reserve Line

Denver's condo buildings in Cherry Creek, LoDo and around Union Station face a reserve problem that begins with insurance. Hail claims along the Front Range have pushed master policy premiums and deductibles up sharply. A budget that absorbs a large premium increase without raising dues does so by starving reserves. Buildings that cleared 10% comfortably two years ago may test below it today.

The master policy itself is also part of the agency review. Denver buyers face two linked questions: whether the coverage is acceptable and whether the budget still funds reserves after paying for it. A board that raises dues to cover both is doing the buyer a favor. Where it has not, jumbo loans in Denver through a Non-QM lender can proceed on the lender's own assessment of the building rather than the agency ratio.

When a Non-QM Condo Loan Fits

Non-QM loans are not sold to Fannie Mae or Freddie Mac, so the 15% requirement does not apply to them. The lender sets its own project standards. Most still review the budget, reserves, insurance, litigation, commercial space and short-term rental activity, and some will decline a building the agencies would accept. The difference is that the buyer is not limited to one framework.

The product choice follows the borrower rather than the building. An asset depletion mortgage converts eligible investment and retirement balances into qualifying income, with loan amounts up to $10 million for qualified borrowers. A bank statement loan qualifies a business owner on 12 or 24 months of deposits, up to $7 million for qualified borrowers. A no-ratio loan sets income aside entirely for a primary residence, up to $4 million for qualified borrowers. For an investor buying a condo to rent, a DSCR loan qualifies on the unit's rental income, subject to the lender's own condo and short-term rental rules.

Non-QM pricing and down payment requirements may differ from conventional condo financing, and the comparison should be made with real numbers. Down payment minimums depend on the loan amount, credit, property and program, so a minimum available on one transaction should not be assumed to apply to the largest loan sizes. For a strong borrower in a building that fails the agency test, the question is rarely whether a Non-QM loan is available. It is which lender's project review the building passes.

Frequently Asked Questions

Does the 15% rule apply to my loan if I apply before January 4, 2027?

Both agencies key the change to the loan application date, so an application dated before January 4, 2027 is reviewed under the 10% standard. The retirement of the limited and streamlined reviews already applies, so the building's budget will still be examined. Closing timelines near the cutoff deserve attention, since a delayed application can change the standard that applies.

Is 15% a reserve account balance or a budget line?

It is a budget line. The test compares the association's annual budgeted reserve contribution to its annual budgeted assessment income. A building with a large accumulated reserve balance but a small annual contribution can fail the test. A building with a thin balance but a 15% annual contribution can pass it. The reserve study path considers the funded balance as well.

Can the association fix a shortfall after I go under contract?

Yes, if the board adopts an amended budget that meets the standard and the lender accepts the amended figures. The constraint is time. Boards meet on their own schedules, and some governing documents require owner notice or a vote for a mid-year budget change. Asking before the offer leaves room for the board to act or for you to choose a different program.

Will a Non-QM lender finance a condo in a building the agencies reject?

Often, yes, because the Non-QM lender applies its own project review rather than the agency ratio. The lender still looks at the budget, insurance, repairs, litigation and rental activity, and a building with serious structural or insurance problems may not pass anywhere. A reserve shortfall on an otherwise healthy building is the kind of issue Non-QM lenders routinely accept.

Do association dues count against my qualifying income?

Yes. The monthly association fee is added to principal, interest, taxes and insurance when the lender calculates your housing payment, and any current special assessment payment is usually added as well. In buildings with large budgets, dues can be the difference between an approval and a decline. The fee schedule belongs in the first conversation about the loan amount.

Why Working With a Mortgage Broker Matters

The La Jolla couple qualified at 22% with one divisor and 32% with another. The Austin consultant's ratio moved from 28% to 34% on the choice of statement period. In neither case did the building's budget or the borrower's finances change. The lender's rules produced the difference, and the condo project review adds a third set of rules on top.

A mortgage broker compares those rules across lenders before the file is committed to one of them. For a condo purchase in 2027, the comparison begins with the project. Which lenders accept the building's budget, which require a reserve study, and which apply overlays above the agency floor are questions that can be answered before the appraisal is ordered.

The product decision follows. A borrower who fits conventional guidelines in a building that does not may need a Non-QM lender for reasons that have nothing to do with income. A broker who sees both halves of the file can match them in one pass instead of discovering the mismatch at the end.

Why Work With LendFriend Mortgage

LendFriend Mortgage arranges condo financing for buyers in San Diego, Los Angeles, Austin, Miami, Chicago, Charlotte and Denver, including jumbo loan amounts through asset depletion mortgages, bank statement loans and no-ratio programs for qualified borrowers. With access to more than 40 wholesale lenders, the team can see which conventional lenders apply overlays to condo projects and which Non-QM lenders run an independent project review.

The review begins with the building. The budget, the reserve line, the reserve study, the master policy and any special assessments are read against lender guidelines before the loan amount is set. Mapping those documents early identifies whether the purchase belongs on a conventional path, a portfolio path or a Non-QM path, and what each one will cost.

A retiree in La Jolla, a consultant on Rainey Street, an executive in Miami Beach and an investor in Cherry Creek each need a different structure. LendFriend matches the borrower and the building to the lender whose rules fit both, with program availability depending on the property's state and applicable licensing.

The Bottom Line

The 15% reserve rule is a test of the building, not the buyer. Beginning with applications dated January 4, 2027, an association that budgets less than 15% of its assessment income for replacement reserves must support the gap with a qualifying reserve study. If it cannot, every unit in the building sits outside conventional financing until the budget changes.

The rule rewards buyers who read the budget before the offer. Where the building passes, conventional condo financing continues as before. Where it does not, Non-QM lenders with independent project standards keep the purchase possible, and the comparison between those paths should be made with real numbers early in the process.

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