What Is An Ideal Percentage For The HOA Reserve Funds?
Posted on May 11, 2020 8:00 AM by HOA Sites
Categories: HOA Website
Every community website you visit will probably have a different perspective on what percentage is healthy regarding the reserve funds. Yet, most of them agree that you can’t base your decisions on the percent funded because it rarely stays the same. Fluctuations happen all the time due to a variety of factors.
Even when an HOA is funded 100 percent, an unexpected project could suddenly come along and throw the HOA into disarray. Fortunately, there are ways to resolve such situations without depleting the reserves.
The law is surprisingly flexible where assessment issues are concerned. Basically, it permits the board to raise assessments by 20 percent and this can be done without voting on the matter. If the HOA keeps doing this every year, they might raise enough funds to resolve all emergencies.
The board can also take advantage of a special assessment, which is usually restricted to 5 percent (of the current assessment) when being enforced without a vote. Most homeowners are given the option to pay the amount in full or over a period of several months depending on the association.
Loans & Reserve Funds
An HOA can borrow money from the reserves but only after voting on the matter and putting in place a repayment schedule that returns all the funds. It is more common for homeowners associations to take out loans, especially if the emergency is much worse than the board anticipated.
As far as the ideal percentage for the HOA reserve fund is concerned, an average community website has posted that 70 percent is a good starting point. Naturally, every HOA prefers to have their reserves funded 100 percent. It would give the board peace of mind to know that they have the financial means to meet all the anticipated costs in the future. Aside from that, there’s no need to panic about the percentage unless the reserve fund is less than 70 percent!
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- December 1969 (4)