HOA Budget Basics: Funding Today’s Needs and Tomorrow’s Improvements

It’s that time of year again - budget season! If you’ve ever wondered why assessments increase, how projects get funded, or what your HOA is really spending money on, you’re not alone.

Budget planning can feel complicated, but it doesn’t have to be a mystery.

At RowCal, we believe clear communication is the foundation of a strong community. Here’s a closer look at how HOA budgets are built, what goes into them, and why smart planning today protects your investment tomorrow.

What’s in an HOA Budget?

Every association is different, but most HOA budgets cover a few core areas. 

The three line items we see most often are:

• Landscaping contracts

• Insurance premiums

• Reserve contributions

Other big-ticket items typically include things like utilities (electricity, water, trash), snow removal, pest control, legal and admin fees, and general repairs.

One HOA’s 2025 budget set aside $83,000 (about 32%) for reserves, $80,000 for insurance, and $27,000 for landscaping. 

That’s over 70% of their annual budget in just three essential categories, keeping things green, covered, and future-proofed.

The reality is, assessments aren't random. They fund day-to-day needs, protect your property value, and prepare for big-ticket items down the line, such as a new roof or fresh pavement, without hitting everyone with a large, surprise bill.

When Does Budget Planning Start?

For most communities, budget planning kicks off in July or August. Drafting usually happens in September or October, and the final version is approved and mailed out by mid-November.

⭐ If your contracts are already renewed for next year, things move faster. 

But if you’re still waiting on bids or rate changes, starting early gives everyone time to build an accurate, realistic plan without rushing.

Common Budget Pitfalls

One mistake we often see? Forgetting to budget for known projects. 

If your community plans to refresh mulch, fix fencing, or upgrade irrigation next year, that should be built into the budget now.

⭐ Another common misstep is trying to keep assessments as low as possible without considering the long-term needs of the community. 

That can lead to underfunded reserves, deferred maintenance, and even surprise special assessments.

Speaking of reserves...

How Much Should Be Going to Reserves?

Most HOAs put 25–35% of their budget toward reserves, depending on the community’s age, type, and future needs.

But here’s something a lot of owners don’t know: Both Fannie Mae and Freddie Mac have specific requirements for HOA reserve funding for buyers to qualify for traditional loans. 

Fannie Mae generally requires that condominium associations allocate at least 10% of their total annual budget toward the reserve fund, unless a current and credible reserve study supports a lower, yet adequate, contribution.

Freddie Mac also emphasizes adequate reserve funding. While they may allow less than 10% to be set aside for reserves, this is only if the association has a reserve study that supports the lesser amount and is actively following the recommendations of that study.

⭐ If your HOA doesn’t hit that mark, it can limit financing options for future buyers, which means harder sales and lower home values.

That’s why keeping your Reserve Study current and following its recommendations truly matters.

What State You’re In Matters

Not all states handle HOA budgets the same way. 

In Minnesota, the board can approve the annual budget, unless a larger-than-allowed increase triggers owner involvement per the governing documents. 

Yet, in states like Colorado, budgets may require homeowner ratification or a formal meeting if certain conditions exist.

⭐ Always check your community’s governing documents and local laws to make sure you’re on track.

Your HOA budget is far more than just a spreadsheet. It’s a roadmap for your community’s future. 

A thoughtful, well-planned budget protects your investment, funds what matters, and helps everyone avoid unpleasant surprises.

At RowCal, we’re here to help associations budget smarter, communicate better, and build strong, financially healthy communities that owners are proud to call home. If you’d like to learn more about The Smarter Way To HOA, contact us today!