WHAT CONDO BUYERS AND SELLERS NEED TO KNOW RIGHT NOW ABOUT YOUR HOA (August 2026)

What Condo Buyers and Sellers Need to Know About the New HOA Reserve Funding Rules in 2026

By Charm Hartland, Realtor and SRES, Realty World Homes & Estates

If you own a condo in Santa Clara County, are thinking about selling one, or have your eye on buying one, this is the year to pay attention to HOA reserve funding. New lending rules are changing what it takes for a condo building to qualify for a standard mortgage, and a few California requirements are adding to the picture.

Here is what changed, when it takes effect, and what it means for you.

The Big Change: Lender Reserve Requirements

• Fannie Mae and Freddie Mac now require HOAs to fund reserves at 15% of assessment income. The old standard was 10%.
• This took effect August 3, 2026, and lenders can apply it right away. HOAs have until January 4, 2027 to reach full compliance.
• Lenders must also now do a full financial review of the HOA on almost every condo loan. Shortcuts and limited reviews are no longer allowed.

Why This Matters to You

• If an HOA falls short of the 15% reserve level, the building can lose its warrantable status. That means buyers may not qualify for a standard conventional loan there.
• If you're selling: a weak reserve fund can shrink your buyer pool and slow down a sale, even if your unit shows beautifully.
• If you're buying: ask for the HOA's reserve study and percent funded number before you write an offer. A low number can turn into financing trouble mid escrow.

A Few More Gotchas:

There are some finer details buyers, sellers, and HOA boards should know about:

• Master policy deductible cap. If the HOA's master insurance has a per-unit deductible over $50,000, the building is flagged non-warrantable, effective July 1, 2026.
• HO-6 policies may be required. If the master policy does carry a per-unit deductible, the unit owner must carry an HO-6 policy that covers at least that deductible amount. This can be a surprise added cost for buyers.
• Loan application timing matters. Applications dated before August 3, 2026 can still be processed under the old, easier rules. After that date, the old shortcut review process is gone for good.
• No more bare-minimum reserves. HOAs can no longer get by on a bare-minimum reserve balance. A funding plan tied to a real reserve study is now required, not optional.
• Some good news on insurance. Roofs can now be insured on an actual cash value basis instead of full replacement cost, and the inflation guard requirement was dropped. This can lower HOA insurance premiums.
• A path around the 15% minimum. The 15% reserve minimum can be avoided if the HOA has a reserve study updated within the last three years and is funding at the highest recommended level in that study.

California Rules Adding to the Picture:

State law is layering on top of these lending changes:

• SB 326 required many condo HOAs to complete professional inspections of balconies and decks by January 1, 2026. Associations that missed this face real liability and cost exposure.
• State law already requires a reserve study every three years and an annual disclosure of how well funded the reserves are.
• A bill in progress, SB 1007, would cap yearly assessment increases and require more fee transparency. It has not passed yet, so it is worth watching, not yet acting on.

What To Do Next:

Whether you're listing, buying, or sitting on an HOA board, a few simple steps go a long way this year:

1. Before listing or buying: pull the HOA's most recent reserve study and budget disclosure.
2. Ask directly. Contact the HOA management company and ask what percent funded the reserves are today.
3. Talk to your lender early if reserves are below 15%. Some loans may still be possible, but the process will take more time.

This is general information, not legal or financial advice. Every HOA and every loan file is different. 

Charm Hartland Realtor | Owner, Realty World Homes & Estates | SRES 408-712-3932 | Charm@HartlandTeam.com | www.hartlandteam.com | DRE #01216487