The 10 percent test
Many condo mortgages are sold to Fannie Mae or Freddie Mac, so their project standards shape what lenders ask. Fannie Mae's March 2026 FAQ on project standards describes the basic reserve check: the association should have a minimum annual budgeted replacement reserve allocation of 10 percent. The lender divides the yearly amount budgeted to reserves by the yearly assessment income the budget expects.
A 30-unit association that budgets $240,000 a year in common charges and puts $24,000 of it toward reserves sits exactly at the line. Put $18,000 in and it falls short, however healthy the balance looks.
Using a reserve study instead
The same FAQ lets a lender rely on a reserve study in place of the 10 percent calculation. The study has to meet Fannie Mae's requirements in its Selling Guide, the lender keeps it on file with its own analysis, and the association's funded reserves must meet or exceed what the study recommends. Lenders do not have to accept studies, and some prefer the simple calculation.
For an association that contributes less than 10 percent but is well funded against its actual components, a current study is often what keeps units financeable.
What changed in 2026
Fannie Mae announced updated project standards and insurance requirements on March 18, 2026, with dates phased in over the following months. Two of them touch reserves directly, according to its FAQ:
- For loan applications dated on or after August 3, 2026, a study used as the exception cannot use the baseline funding method, which only aims to keep the reserve balance above zero. The highest recommendation in the study must be used.
- The Limited Review process is being retired for applications on or after August 3, 2026, so more loans on established projects go through a full review of the budget and the association's documents.
Further changes run into 2027. Ask the lender which version of the rules applies on your buyer's application date, and see our blog for a longer walk through the 2026 changes.
The condo questionnaire
A buyer's lender usually sends the association or its manager a project questionnaire. Expect questions about the budget and reserve allocation, the reserve balance, any special assessments voted or planned, deferred maintenance, litigation, owner-occupancy and delinquencies. A board with a current study and an approved budget can answer in days rather than weeks.
Insurers and replacement cost
The master policy covers the buildings, and insurers and lenders want the insured value to reflect what it would cost to rebuild. Many reserve study firms offer a replacement cost appraisal for insurance with the study, since both start from a detailed look at the same buildings. Ask for it when you request a quote if your agent has raised the subject.
Lender rules change often and individual lenders may add their own. Sources: Fannie Mae's published FAQ. Not lending or legal advice.