Underfunded HOAs Create Mortgage Risks for US Homebuyers

Approximately 40% of homes for sale in the United States now require homeowners association fees, according to data from Realtor.com. While these organizations manage community amenities and property values, insufficient funding in some associations is creating significant financial risks for buyers, including deferred maintenance and sudden special assessments.

Fannie Mae and Freddie Mac have implemented stricter reserve requirements that can render properties ineligible for standard mortgage backing. In one instance in a Chicago suburb, a home buyer aborted a condo purchase after discovering the HOA held only 1% in cash reserves. This shortfall forced the lender to replace a 6.7% mortgage with a nonqualified loan carrying a 10% interest rate.

To address these risks, Freddie Mac announced that minimum replacement-reserve allocations will rise to 15% for mortgages applied for on or after January 4, 2027. Real estate experts now advise buyers to scrutinize HOA financial statements, insurance premiums, and reserve balances before closing to avoid unexpected costs or financing hurdles.