When you buy a condo, you're buying into a building's finances along with the unit. The reserve fund is where that shows up first. Here's how to read it, what changes for lenders in January 2027, and how special assessments work in Illinois.
What is an HOA reserve fund?
A reserve fund is the building's savings for big, predictable projects: the roof, elevators, boilers, masonry and tuckpointing, windows, the façade. These don't come up every year, but every building faces them eventually. The association sets aside part of each owner's monthly assessment so the money is there when the work is due.
A building that underfunds reserves can keep monthly assessments low for years. Then a major repair comes due, the fund can't cover it, and owners get a special assessment.
What a reserve study tells you
A reserve study looks at each major component of the building, estimates how much useful life it has left, and recommends how much the association should save each year to replace it on time. It's the closest thing a building has to a financial health report.
Two things to check:
- How old is the study? Many professionals recommend updating it every 3 to 5 years. An older study can hide a lot.
- Does the actual reserve balance match what the study recommends? A large gap between the two is the clearest warning sign that a special assessment is coming.
In my experience touring buildings across the North Side and North Shore, the associations that feel well run tend to put somewhere around 20 to 30% of their annual assessments toward reserves. That isn't an official benchmark. It's what I've seen hold up. The reserve study is still the real answer for any specific building.
The 2027 Fannie Mae reserve rule
Fannie Mae is raising its minimum. For loan applications dated on or after January 4, 2027, a condo association must budget at least 15% of its annual assessment income toward reserves, up from 10%. Lenders are encouraged to apply the new standard now.
Why this matters to you:
- For buyers: a building that falls below the floor can lose warrantable status. That usually means a portfolio loan instead of a conventional one, with a higher rate and a larger down payment.
- For owners: if your building is under 15%, expect the board to raise the reserve contribution in the next budget, or expect resale to get harder, since fewer buyers can finance a unit there.
- What to ask: how much of the current budget goes to reserves, and whether the board plans to change that before 2027.
How your monthly assessment breaks down
Monthly assessments in Chicago condo buildings usually cover building insurance, water, common-area maintenance, staffing or management, and the reserve contribution. Ask how much of your monthly fee actually goes to reserves. A low monthly fee with a weak reserve contribution can be a warning sign that looks like a bargain.
What is a special assessment?
A special assessment is a one-time charge to every owner, used when reserves can't cover a major repair or replacement. Regular assessments pay for ongoing operations and planned savings. A special assessment covers the gap.
Common triggers include façade or structural repairs, elevator modernization, and roof or HVAC replacement. Older buildings face them more often, and rising construction costs have made some reserve plans that once looked adequate fall short.
How special assessments work in Illinois
Special assessments are legal in Illinois and are governed by each building's declaration and bylaws and the Illinois Condominium Property Act (765 ILCS 605/18). A few points worth knowing:
- Boards must give owners written notice, generally 10 to 30 days, and adopt the assessment at a properly noticed open meeting.
- Owners can petition against assessments that exceed 115% of the prior year's total assessments.
- Emergency assessments don't require an owner vote.
- Each unit's share follows its percentage of ownership in the declaration, just like regular assessments.
- Unpaid assessments can become a lien on the unit, so they're not something to ignore.
Paying a special assessment
Owners can usually pay their share in one lump sum or in installments. If the association borrowed to fund the project, installments may carry interest. Ask which applies.
Reading board minutes like a buyer
Board minutes often show problems before the budget does: a roof leak under discussion, an elevator project being pushed back year after year, a litigation matter, or talk of "deferred maintenance." Two years of minutes gives you a pattern. Is the board handling maintenance on schedule, or tabling the same repair at every meeting?
Documents to request before you offer
Ask for these as early as you can, ideally before your attorney review period starts:
- The Illinois Section 22.1 disclosure
- The current reserve study, and the date it was completed
- The current operating budget and reserve fund balance
- The last 2 years of financial statements
- Board meeting minutes from the past 12 to 24 months
- Any pending, proposed or recent special assessments (last 5 years)
- The building's insurance coverage and recent claims
- Any pending litigation
Also ask how many owners are behind on assessments. A high delinquency rate makes it harder for the association to collect when a big bill comes due.
A note for work-from-home buyers
If you plan to work from the unit, check the renovation rules too. Some associations restrict interior wall changes or require board approval, which matters if you want to build out a real office. Get the policy in writing before you fall for a floor plan.
If you're selling during a special assessment
Who pays a pending special assessment is negotiable, so it should be spelled out in the contract. In practice, buyers commonly ask the seller to cover any assessment approved before closing, so if you know one is coming, it's smart to budget for it.
Buying a condo shouldn't mean gambling on a building's finances. I'm happy to go through the reserve study, budget and minutes with you before you write an offer. Michael Beaver
Frequently asked questions
How do I know if a Chicago condo building has healthy reserves?
Compare the actual reserve balance to the reserve study's recommendation, and check how old the study is. Then confirm the budget puts at least 15% of assessment income toward reserves, which Fannie Mae requires for loans dated on or after January 4, 2027.
What is the Fannie Mae 15% reserve rule?
For loan applications dated on or after January 4, 2027, Fannie Mae requires a condo association to budget at least 15% of its annual assessment income toward reserves, up from 10%. Buildings below that floor can lose eligibility for conventional financing.
Are special assessments legal in Illinois?
Yes. Illinois doesn't cap the amount, but owners can petition against assessments that exceed 115% of the prior year's total assessments under the Illinois Condominium Property Act.
Can a condo board levy a special assessment without a vote?
Often, yes. The declaration, bylaws and Illinois law decide whether a vote is required. Emergency assessments don't need one.
Can I back out of a condo purchase if I find red flags during attorney review?
In most standard Illinois attorney review periods, yes. That's why requesting the association's documents early protects you.
Who pays a special assessment, the buyer or the seller?
It's negotiable and should be written into the contract. Buyers commonly ask sellers to cover assessments approved before closing.
This article is general information, not legal or financial advice. For questions about a specific building or contract, talk with your real estate attorney and lender.
