What Reserve Studies Reveal Before an HOA Loan Closes
A reserve study's cost estimates age. Across the lenders we work with, a study more than three years old is generally considered outdated, and current bids override the study's estimates. Funded percentage and component condition are different measures. If you don't have a current reserve study, start one 6 months to a year before you need the money.
Exactly when each document is requested varies by lender. Most loans follow three stages, and a reserve study, generally within the past 3 years, is among the documents lenders ask for at the start. Here is what boards should know about the study before they borrow. For short answers to the common questions, see our reserve study answers for boards.
A reserve study's cost figures age
A reserve study's cost figures age. Association Reserves notes that remaining useful life and current repair or replacement cost estimates typically change from year to year (Association Reserves), and Reserve Advisors lists changes in interest and inflation rates among what an update accounts for (Reserve Advisors).
A study still shows which projects are coming and how long each component should last, but construction and material costs change. Get current estimates and bids within a few months of the planned work to know what it will actually cost.
Funded percentage is not the same as component condition
Percent funded compares the association's actual reserve fund balance with its fully funded balance, which is calculated from each component's fractional age and current estimated replacement cost (Association Reserves). Component condition sits elsewhere in the study, in the reserve component list. Most associations that come to us are not fully funded.
When a clean file is not a complete one
The lenders we work with are already trending this way: toward requiring a refreshed study, even when the file otherwise looks clean. It matters most on loans over $1 million. A lender doesn't want to finance a $1 million roof only to learn the association needs $3 million in siding the following year.
Preparing to finance a project? Book a free consultation: we'll tell you what a lender is likely to flag and how much the association might reasonably borrow. Our free capital planning tool lets you list the work ahead and what it's likely to cost. There is no upfront cost, and we are paid at closing.
Get a free consultation or open the capital planning tool.
What a reserve study contains
The executive summary
What an underwriter reads first, and how much weight each part of the study carries, varies by lender, so ask.
The funding plan
The financial analysis is where reserve fund strength and recommended reserve contributions are calculated, based on at least the next 20 years of inflated reserve expenses (Association Reserves). Fannie Mae's Selling Guide, which governs unit mortgages rather than the association's loan, expects a study used for a condominium project review to include a suggested reserve funding plan (Fannie Mae).
The component list
The physical analysis produces the reserve component list: each component with its useful life, remaining useful life and current repair or replacement cost (Association Reserves). Fannie Mae expects a study it relies on to cover all major components of the common areas for which repair, maintenance or replacement is expected (Fannie Mae).
The pattern we keep seeing
What makes a study strong
A reserve study isn't a quote for work; current bids override the study's estimates. Where a reserve study is outdated or its estimates are off, formal contractor bids usually carry more weight.
How current the study needs to be
Across the lenders we work with, a reserve study more than three years old is generally considered outdated. Reserve study professionals generally recommend an update every three to five years, and some states require it more often (Reserve Advisors). State rules differ: Colorado requires a reserve study policy, not a reserve study.
The board's own knowledge of the study is a signal
Before you borrow, review the reserve study as a board: start with the highest-dollar items and the ones with the shortest remaining life. Then document the board's intent in its meeting minutes. It shows the board has done its homework.
What to do before you apply for a loan
If you don't have a current reserve study, start one 6 months to a year before you need the money. For contractor pricing, 3–6 months out: binding bids and formal quotes; 1 year or more out: estimates are fine.
The thing nobody says out loud
We do not prepare reserve studies. A weak one can be supplemented: current contractor bids, engineering reports, and architectural or structural analyses all help.
If the study is dated, update it before applying rather than during underwriting.
Preparing to finance a project? Book a free consultation: we'll tell you what a lender is likely to flag and how much the association might reasonably borrow. Our free capital planning tool lets you list the work ahead and what it's likely to cost. There is no upfront cost, and we are paid at closing.
Boards also ask
What are the requirements for an HOA loan?
Across the lenders we work with, five things matter: borrowing authority in your governing documents, the last 3 years of financial statements, a reserve study generally within the past 3 years, delinquency under control, and a defined project with contractor bids. Exactly when each document is requested varies by lender. In the loans we arrange, no individual’s credit is pulled.
Does our association qualify for a loan?
Most do. We arrange financing for HOA and condo associations in all 50 states. Lenders review your operating budget, reserve study, delinquency rate, and the borrowing authority in your governing documents, not any individual owner’s personal credit.
What happens if we apply on our own and get declined?
A declined application can close that lender to you for a while, and boards often approach the obvious bank first. We position your project for the lenders most likely to approve a community like yours, so your first application is not a wasted one.
Still deciding? Talk it through with us.
We’ll talk with any board at no charge and no obligation, just answers.