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Here is a number worth sitting with: 74% of HOAs in the United States are underfunded. That figure comes from Association Reserves, based on an analysis of more than 100,000 reserve studies conducted between 1986 and 2025. It is also the highest underfunding rate the firm has ever recorded, driven by elevated construction costs and the wave of scrutiny that followed the 2021 collapse of Champlain Towers South in Surfside, Florida.
That means three out of every four HOA boards in the country are sitting on a funding gap. When a major repair lands and the reserves are not there, the choices are brutal: hit homeowners with a special assessment, take out a loan, or defer the repair and hope nothing else breaks first.
In 2026, with materials costs still elevated and insurance premiums rising, the margin for underfunding has gotten even thinner. This guide covers what reserve funds are, how much you should have, what the law requires in your state, and what to do if your fund is running short.
What Is an HOA Reserve Fund?
Think of a reserve fund as the HOA's long-term savings account. It exists for one purpose: to pay for the major repairs and replacements that every community knows are coming, just not exactly when.
The operating fund handles the month-to-month expenses. Landscaping, utilities, insurance premiums, management fees. The reserve fund handles the big stuff. Roofs. Roads. Pool equipment. Elevator overhauls. Parking lot resurfacing. These are not surprises. Every component in a community has a lifespan, and reserve planning is the process of saving for those costs before they arrive rather than scrambling after they do.
Common components covered by reserve funds include:
● Roof replacement on shared buildings
● Road and parking lot resurfacing
● Pool and spa renovation or equipment replacement
● Elevator overhaul and modernization
● HVAC systems in common buildings
● Exterior painting and siding
● Fencing, gates, and access control systems
● Clubhouse and amenity building renovation
● Stormwater drainage and irrigation systems
One important boundary: reserve funds are not a general savings account. The money is earmarked for specific capital components. In most states, redirecting reserve funds to cover operating shortfalls requires a membership vote and may conflict with state law.
Operating Fund vs. Reserve Fund: What Is the Difference?
Mixing these two up is one of the most common and damaging financial mistakes HOA boards make. Here is the short version.
The operating fund covers everything that recurs on a predictable schedule. Landscaping contracts, utility bills, management fees, administrative costs. It gets replenished monthly through homeowner assessments.
The reserve fund covers the large, infrequent capital expenditures that every community will eventually face. It builds up over years and gets drawn down when major components need replacing.
They must always be kept in separate accounts. Using reserve funds to plug an operating deficit is not just bad practice. In many states it is a violation of statute or governing documents, and it quietly erodes the financial cushion the community is depending on.
How Much Should an HOA Have in Its Reserve Fund?
The industry standard is the 70% rule. An HOA's reserve fund should be funded at 70% or higher of its fully funded balance. The fully funded balance is the theoretically ideal amount the fund would hold if every component were funded in exact proportion to its age and replacement cost. This benchmark is established in CAI's National Reserve Study Standards, the authoritative framework for reserve planning in the U.S., originally published in 1998 and updated most recently in 2023.
What the Percent Funded Number Actually Means
● 70% or higher: Well funded. The community can handle most anticipated repairs from reserves without issuing a special assessment.
● 30% to 69%: Moderately funded. A funding gap exists. Not a crisis yet, but a catch-up plan is needed and boards should be transparent with homeowners about where things stand.
● Below 30%: Critically underfunded. The risk of a special assessment is high. Major repairs may get deferred because the money simply is not there, and deferred maintenance tends to grow into larger, more expensive problems.
As for how much of the annual budget should go toward reserves, PropFusion's reserve funding analysis puts the range at 15 to 40% of total HOA assessment income. Newer communities with minimal shared infrastructure sit at the low end. Older communities with aging roofs, elevators, and complex amenity systems sit at the high end. The right number for your community comes from a current reserve study, not a general rule.
What Is a Reserve Study and Why Does Your HOA Need One?
A reserve study is the professional assessment that makes reserve planning possible. CAI describes reserve studies as budgetary planning tools that identify the components an association is responsible for maintaining, evaluate the current status of the reserve fund, and provide a stable funding plan to offset future major expenditures.
In practice, a complete reserve study does five things:
● Inventories every component the association is responsible for maintaining
● Evaluates the current condition and remaining useful life of each component
● Projects replacement costs in today's and future dollars
● Calculates the current percent funded status of the reserve account
● Recommends an annual contribution level to reach and maintain the funding target
The Three Types of Reserve Studies
Level 1 (Full): A complete on-site inspection of all components with a full physical and financial analysis. This is the most comprehensive option and the one CAI recommends every 3 to 5 years following its updated 2023 standards, which incorporated structural inspections in the wake of the Surfside tragedy.
Level 2 (Update with site visit): Updates the prior study with a new on-site inspection but does not re-inventory all components from scratch. A practical choice for interim years between full studies.
Level 3 (Update without site visit): Updates the financial analysis only, using the board's current data. Least comprehensive. Should never substitute for a full study.
A practical note for 2026: any reserve study completed before 2024 is likely working with construction cost assumptions that are now materially out of date. If your community has a major capital project on the horizon, commission an update before you approve it.
Reserve Fund Requirements by State
Reserve fund and reserve study requirements vary widely by state. According to CAI's state-by-state reserve study resource, reserve funding for condominium associations is legally required in 12 states: Connecticut, Delaware, Florida, Hawaii, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New York, Oregon, and Washington. Here is a summary of key states:
● California: Civil Code 5550 requires a reserve study at least every 3 years, with a site-visit update at least every 3 years. Annual updates are required. The percent funded figure must be disclosed in the annual budget report. Source: California Civil Code 5550-5565.
● Florida (Condos): SIRS — Structural Integrity Reserve Studies — required for condos 3 or more stories. Reserve funding mandatory from 2025 onward. Source: Florida Statutes Chapter 718.
● Florida (HOAs): Reserve funds are voluntary but governed by Florida Statute 720.303(6) once established. No reserve study mandate for HOAs.
● Nevada: NRS 116 requires reserve studies. Reserve preparers must be registered with the state Department of Real Estate.
● Hawaii: Required for condominiums under HRS Chapter 514B.
● Virginia: Required for common interest communities under the Virginia Property Owners Association Act.
● Washington: State law statutorily encourages associations to have a reserve study performed every 3 years, unless doing so would impose unreasonable hardship. Not a hard mandate.
● Texas: No statewide mandate. Governing documents and lender requirements (Fannie Mae, FHA) typically apply.
● Ohio: Reserves required to be adequate under ORC 5311.081 but no reserve study mandate.
Even in states with no legal mandate, Fannie Mae and Freddie Mac guidelines for condominium mortgage underwriting effectively require adequate reserves. Underfunded communities can find it harder for buyers to secure financing, which directly affects property values.
The Three Reserve Funding Strategies
HOA boards choose from three approaches to reserve funding. All three are defined in CAI's National Reserve Study Standards. The one you pick has real consequences for homeowner costs and financial risk.
Full Funding
The reserve balance stays at or near 100% of the fully funded target at all times. This is the safest approach. It requires higher regular contributions but is the least likely to result in a special assessment. Communities that fully fund their reserves tend to have more predictable dues and fewer emergency situations.
Threshold Funding
The reserve balance is managed to stay above a defined minimum, typically 70% of the fully funded target. This is the most common approach in practice. It balances lower near-term dues with reasonable financial risk. As RealManage explains in their reserve funding guide, threshold funding gives boards flexibility while maintaining a meaningful cushion against unexpected costs.
Baseline Funding
Contributions are set just high enough to keep the reserve balance above zero throughout the projection period. This is the riskiest of the three. It minimizes near-term homeowner costs but leaves no buffer. When multiple major components come due in the same year, there is nothing there to absorb the hit.
What Happens When Reserve Funds Are Not Enough?
When a major repair is needed and the reserves are short, a board has three paths. None of them are easy.
Special Assessment
A one-time charge billed to all homeowners to cover the gap. Special assessments are the most common outcome of chronic underfunding. Amounts of $5,000 to $20,000 or more per unit are not uncommon for major repairs in communities that have run reserves low for years. They tend to generate significant homeowner friction and raise hard questions about how the finances got to this point.
HOA Loan
The association borrows from a financial institution specializing in community association banking. First Citizens Bank's community association team notes that lenders typically require evidence of a current reserve study and a credible repayment plan before extending credit to an HOA. This spreads the cost over time but adds interest expense and reduces future financial flexibility.
Deferred Maintenance
Putting off the repair. This is usually the worst option in the long run. A $40,000 roof repair left alone for three years can turn into a $90,000 structural problem. Deferred maintenance also creates board liability, can affect the community's insurability, and makes it harder for buyers to get mortgage financing.
Six Ways to Build a Healthier Reserve Fund
Get a reserve study and keep it current
Everything starts here. Without a current reserve study, you are budgeting on guesswork. Commission a full Level 1 study every 3 to 5 years and an update annually. CAI updated its reserve study standards in 2023 to incorporate structural inspections and preventive maintenance, expanding the scope of what a good study should cover.
Set contributions based on the study, not a percentage rule of thumb
The 15 to 40% budget guideline is a useful sanity check, not a substitute for a study. As Reserve Advisors director Jacque Martin has noted, you cannot simply decide on a percentage and call it good. The number has to come from an actual analysis of your specific components and their projected costs. PropFusion's reserve contribution guide makes this same point: two communities at 70% funded can have completely different risk profiles based on what components they own and when those components are due.
Raise contributions gradually, not suddenly
Annual increases of 3 to 7% are far easier for homeowners to accept than a sudden jump. Boards that make small, consistent annual increases rarely face the political pressure that comes with catch-up assessments. If you are starting from a deeply underfunded position, a phased multi-year catch-up plan is almost always better received than a single large increase.
Keep reserve funds in FDIC-insured, liquid accounts
Baselane's HOA reserve account guide recommends money market accounts, laddered certificates of deposit, and U.S. Treasury securities as appropriate vehicles for reserve funds. The priorities are safety and liquidity, not yield. Speculative investments have no place in a reserve account.
Invest in preventive maintenance
A pool pump replaced proactively at year 12 costs a fraction of what it costs to replace it at year 15 after it has caused secondary damage. Preventive maintenance extends component lifespans and reduces total capital spend over time. It also makes reserve studies more accurate, because components that are well maintained tend to outlast their projected useful lives.
Tell homeowners what is happening
Transparency reduces conflict. Homeowners who understand why reserve contributions are what they are, and what they are protecting against, are more likely to support assessment increases when they are needed. First Citizens Bank's community association banking team recommends sharing a high-level reserve fund summary in every annual budget package: current percent funded, major upcoming projects, and why contributions are changing. That communication, done consistently, builds the kind of trust that makes difficult financial decisions easier.
How ManageCasa Helps with Reserve Fund Management
Managing reserve fund contributions alongside operating expenses, owner communications, and compliance tracking takes real administrative effort. ManageCasa simplifies that with a financial management platform built specifically for HOAs and community associations.
● Real-time financial reporting: Track reserve fund balances, contributions, and expenditures alongside operating financials in one dashboard.
● Automated assessment collection: Collect reserve contributions as part of regular homeowner dues with automated payment tracking and late fee processing.
● Budget vs. actual reporting: Compare planned reserve contributions against actual deposits and surface variances before they become problems.
● Document storage: Store reserve studies, capital project records, and financial disclosures securely and share them through the resident portal.
● Board communication tools: Send reserve fund updates, budget reports, and capital project summaries directly to residents and board members through built-in messaging.
ManageCasa starts at $1 per unit per month, with a free tier available for up to three properties. Schedule a demo to see how the platform supports reserve fund management alongside the full scope of HOA and community association operations.
Frequently Asked Questions
What is an HOA reserve fund?
An HOA reserve fund is adedicated savings account set aside to pay for major future repairs andreplacements of common area components — roofs, roads, pools, HVAC systems. Itis separate from the operating fund, which covers day-to-day expenses, and it cannotgenerally be redirected for operating costs without a membership vote.
How much should an HOA havein its reserve fund?
The widely accepted industrybenchmark is 70% of the fully funded balance, as established in CAI's NationalReserve Study Standards. Communities below 30% funded are at high risk ofspecial assessments. The right target for your community depends on whatcomponents you own, their age, and upcoming replacement timelines — which isexactly what a reserve study determines.
What is a reserve study andhow often should one be done?
A reserve study is aprofessional assessment of an HOA's common area components that estimates theirremaining useful life, replacement costs, and the annual contributions neededto fund those replacements. CAI recommends a full study every 3 to 5 years withannual updates. California requires a site-visit update at least every 3 yearsby law.
What happens if an HOA doesnot have enough in its reserve fund?
When reserves fall short ofwhat a major repair requires, the board has three options: issue a specialassessment to homeowners, take out a loan, or defer the repair. Deferredmaintenance is usually the worst path — costs compound and liability grows. Specialassessments are the most common outcome but tend to generate significanthomeowner conflict.
Are HOA reserve fundsrequired by law?
It depends on the state.Reserve funding for condominium associations is legally required in 12 states:Connecticut, Delaware, Florida, Hawaii, Illinois, Maryland, Massachusetts,Michigan, Minnesota, New York, Oregon, and Washington. In states without a legalmandate, Fannie Mae and FHA lender guidelines often still require adequatereserves as a condition of mortgage financing for buyers in the community.
What is the differencebetween an HOA operating fund and a reserve fund?
The operating fund coversrecurring, predictable day-to-day expenses. The reserve fund covers large,infrequent capital expenditures. They serve completely different purposes, mustbe held in separate accounts, and should never be commingled.