Condo reserve requirements for 2027: the 15% line, explained for LA

The condo reserve requirements for 2027 come from lenders, not from California law. For conventional loans sold to Fannie Mae or Freddie Mac, a condo building that needs a Full Review must budget at least 15% of its annual assessment income to reserves, for loan applications dated on or after January 4, 2027. Today the line is 10%.

California's own minimum reserve law, AB 2050, doesn't start until 2032. So for the next five years, the lender test is the one that decides how most LA buildings are judged. This page covers how the test works, the reserve study alternative, what the math looks like, and what to do with it.

The rule, word for word

Fannie Mae Lender Letter LL-2026-03 (March 18, 2026) raises the reserve allocation "from a minimum of 10% to a minimum of 15%" of the annual budgeted assessment income. Lenders must comply when using the Full Review process for loan applications dated on or after January 4, 2027. Freddie Mac's Bulletin 2026-C, the same day, sets the same 15% for applications received on or after January 4, 2027.

Three details matter more than the headline:

• The application date controls. A loan application dated January 3, 2027 is reviewed at 10%, even if it closes in February.
• No grandfathering. Freddie says an unexpired project approval completed earlier must still be checked against the new rule for applications received on or after the effective date.
• Full Review only. Buildings of 10 or fewer units that qualify for Fannie's Waiver of Project Review (or Freddie's Exempt from Review) aren't tested on reserves at all. Since August 3, 2026, every building of 11 or more units gets a Full Review.

Fannie and Freddie gave their reason in the letter: they found a correlation between buildings with underfunded reserves and buildings that need critical repairs.

How the 15% is calculated

The test is the budgeted reserve allocation divided by the budgeted assessment income, both from the association's annual budget (Selling Guide B4-2.2-02, dated August 5, 2026). It's a line item test. A building can pass with a thin bank balance, and fail with a healthy one, depending on what the budget says this year.

Some income is left out of the denominator:

• incidental income the association doesn't rely on
• money collected for owner utilities such as cable or internet
• income allocated to reserve accounts
• special assessment income

That last one matters. A special assessment raises cash, but it doesn't count toward the 15%. A board can't pass the test by assessing; the regular budget has to carry it.

The reserve study path

A building doesn't have to hit 15% if it relies on a reserve study instead. The study must have been completed within three years of the lender's project approval, by an independent third party with reserve study expertise, and the budget must fund reserves at or above the study's recommendation.

Since August 3, 2026, the rule is stricter: the lender must verify the budget includes the study's highest recommended reserve allocation, and the baseline funding method (a plan that keeps the balance just above zero) no longer counts. A study that recommends 12% of budget can qualify a building at 12%, if 12% is the top of what the study recommends and the budget funds it.

In practice, boards that already pay for a current reserve study should look at which funding level the 2027 budget picked. If it picked the low end, the building may fail a review it would otherwise pass.

What it costs to close the gap

An illustration, with round numbers. Take a 60-unit building with $600,000 of annual assessment income that budgets $60,000 to reserves. That's 10%, which passes today.

Illustration only. Real budgets have more lines.

Approach	2027 change	Per unit
Move money inside the budget	Shift $30,000 from operating lines to reserves, so reserves are $90,000 of $600,000	No dues change, if the operating cuts are real
Raise dues, all to reserves	Add about $35,300, so reserves are about $95,300 of $635,300 (15%)	About $590 a year, or $49 a month
Use the reserve study path	Fund the study's highest recommendation, whatever it is	Depends on the study

The dues route takes a little more than the plain gap, because raising dues also raises the income the 15% is measured against. In this example the increase is about 5.9%, under the 20% a board can raise regular assessments without a member vote (Civil Code 5605).

Older buildings tend to need more than the minimum anyway. Of the 1,333 buildings in our database with more than 20 residences and a year on file, 850 were completed before 1990. Reserve studies in a 1960s tower such as The Comstock (217 residences, 1964) track different components and ages than in a 2009 tower such as The Century (140 residences). Neither building's budget is described here; ask for it.

How many buildings fall short? No one has a clean count. One lender, AD Mortgage, told FHFA that about 30% of the condo projects it manually reviewed budgeted under 15% (HousingWire, July 20, 2026). That sample was Florida-heavy and the period wasn't given, so treat it as a signal, not an LA number.

California's reserve laws, and AB 2050

California already requires reserve planning, but not a funding minimum. Under Civil Code 5550 and 5560, the board must have a visual inspection of major components at least every three years, review the study every year, and adopt a funding plan. Since January 1, 2025 (SB 900), major components include gas, water and electrical service the association must repair.

Every year, the association sends owners its budget report, 30 to 90 days before the fiscal year ends (Civil Code 5300). For calendar-year associations, the 2027 budget goes out between October 2 and December 1, 2026. It includes the reserve summary, the funding plan, any planned special assessments, and the Assessment and Reserve Funding Disclosure Summary with percent funded (5570).

AB 2050 (Chapter 796, signed September 29, 2026) adds California's first minimum funding rule, operative January 1, 2032. Each reserve study will state a minimum yearly contribution that keeps the projected balance above zero for 30 years, and the association must fund it. If the projection dips below zero, the association must move at least 15% of its gross annual budget into reserves each year until it doesn't, and can levy a reserve funding special assessment no more than once every nine years. Our California HOA laws for 2027 page covers the rest of the session.

Who the 15% line applies to, by loan type

Loan type	Is the 15% line tested?
Conventional conforming and high-balance (to $1,249,125)	Yes, for 11+ unit buildings under Full Review, applications dated on or after January 4, 2027.
Jumbo	Only if the jumbo investor adopts it. Many follow Fannie's standards. Ask.
Non-QM and portfolio	Usually not. One September 2026 program asks for a reserve study only when the allocation is below 3%.
Cash	No loan test. Low reserves can still mean dues increases or special assessments.

The full comparison across every rule is on our condo loan rules for 2027 page.

What buyers, sellers and boards can do

Buyers

Ask for the 2027 budget, not last year's, and find two lines: total assessment income and the reserve contribution. Divide one by the other. Ask whether a reserve study exists, its date, and which funding level the budget used. Our reserve test does the division, and the buyer checklist lists the rest of the package. Our earlier guide on how to read an LA condo HOA budget shows where each number sits.

Sellers

If your building's 2027 budget is under 15% and there's no qualifying study, a buyer using a conventional loan may not be able to close after January 4. Ask the board what it plans. If you're listing soon, a buyer whose application is dated before January 4 is still reviewed at 10%. The seller checklist covers the documents.

Boards

The reserve line is a budget decision, and the budget is being written now. Options include reallocating, raising dues within the 20% limit, or funding the reserve study's highest recommendation. Fannie updates a building's status when documentation shows a problem is fixed. The HOA board brief is written for this, and our LA condo HOA guide and the post on what rising HOA dues mean cover the owner side.

Common questions

What is the new condo reserve requirement for 2027?

For conventional loans sold to Fannie Mae or Freddie Mac, a condo building under Full Review must budget at least 15% of its annual assessment income to reserves, up from 10%, for loan applications dated on or after January 4, 2027. A building can instead fund its reserve study's highest recommended level, if the study is less than three years old.

Does the 15% reserve rule apply to small condo buildings?

Not usually. Buildings of 10 or fewer units can qualify for Fannie Mae's Waiver of Project Review or Freddie Mac's Exempt from Review, which skip the reserve test. Five to 10 unit buildings cannot be part of a master association, and any waived building still needs compliant insurance and cannot be marked Unavailable. Lenders may add their own requirements.

Do special assessments count toward the 15% reserve requirement?

No. Fannie Mae's Selling Guide excludes special assessment income from the calculation, and the test looks at the regular budget's reserve allocation. A special assessment can raise cash for a repair, but the building still needs a budget that allocates 15% of regular assessment income to reserves, or one that funds its reserve study's top recommendation.

Is AB 2050 the same as the 15% Fannie Mae rule?

No. AB 2050 is California law and its funding rules start January 1, 2032. It requires a minimum contribution that keeps a 30-year reserve projection above zero, and a 15% budget transfer only when that projection goes negative. The Fannie Mae and Freddie Mac 15% line is a lending rule that starts January 4, 2027.

This page is general information about published agency guidelines, statutes and ordinances. It is not legal, tax, lending or insurance advice, and we are not lenders, attorneys or insurance brokers. Lenders apply their own overlays, and only a lender’s review decides whether a specific loan in a specific building works. Rules and dates change: confirm anything that affects a decision with your lender, attorney, insurance broker or association. Facts are current as of October 27, 2026.