Capital Reserve Accounts

Fannie Mae and FHA (Federal Housing Administration) have passed increasingly strict lending guidelines on condominium financing. Of particular concern to the associations and trusts for potential buyers is the capital reserve account. A condominium capital reserve account is an emergency fund set aside for major capital common area repairs and expenses, such as a leaky roof, a new boiler system, or other major structural issues. In established condominiums or trusts, some have already set up a healthy capital reserve fund, while others have little, if any, capital reserve money set aside.

10% of the Annual Operating Budget

FHA is now the strictest lending program for condominiums and trusts. The FHA is typically the loan of choice for first time condo buyers nationwide. The FHA rules now require that condominiums and trusts set aside at least ten percent (10%) of their annual operating income towards their capital reserve accounts.

The lender may also require a cursory review of the annual budget, and determine where the budget may be inadequate thereby triggering a capital reserve study.