What Is HOA Percent Funded?

Percent funded is the one number in a reserve study that tells you, at a glance, how healthy your association's reserve fund really is.

It compares the money you have set aside with the amount your common area components have already used up through age and wear. A high number means your reserves have kept pace with deterioration. A low number means the gap is growing, and a special assessment is more likely.

Here is what it measures, how to calculate it, what a good number looks like, and where boards must disclose it.

What Percent Funded Means

Community Associations Institute (CAI), whose National Reserve Study Standards are the most widely used in the industry, defines percent funded as the ratio of the actual or projected reserve balance to the fully funded balance at a specific point in time, usually the start of the fiscal year, expressed as a percentage.

The formula is:

Percent Funded = (Reserve Balance ÷ Fully Funded Balance) × 100

Two things follow from that definition:

• It is a snapshot. Percent funded describes reserve strength on one date, not the funding plan for the years ahead.
• It is relative. A $500,000 balance sounds healthy, but it means little until you know what the association should have on hand. That figure is the fully funded balance.

What Is the Fully Funded Balance?

The fully funded balance is the depreciated value of every component your association is responsible for. In plain terms, it is the amount you would have saved by now if you had set money aside for each component in proportion to the life it has already used.

For each component, the calculation is:

• Current replacement (cost × effective age) ÷ useful life

Add the results for every component on the list and you have the association's fully funded balance. Washington's Uniform Common Interest Ownership Act writes this formula into statute and makes the key point explicit: the fully funded balance is the current value of the deteriorated portion of the components, not their total replacement value.

How to Calculate Percent Funded: A Worked Example

Take a small association with two reserve components:

• Roof. $200,000 to replace, 20-year useful life, 8 years old. Fully funded balance: ($200,000 × 8) ÷ 20 = $80,000.
• Pool resurfacing. $40,000 to complete, 10-year useful life, 5 years old. Fully funded balance: ($40,000 × 5) ÷ 10 = $20,000.

The association's fully funded balance is $100,000. If it has $45,000 in its reserve account:

• $45,000 ÷ $100,000 × 100 = 45% funded

With $70,000 in the account it would be 70% funded, and with $100,000 it would be fully funded. A real reserve study runs this calculation across dozens of components, each with its own cost, age and useful life estimate.

What Is a Good Percent Funded?

Most states set no minimum, but the following figures are good averages to look at:

• 0% to 30% funded: weak. Special assessments and deferred maintenance are common.
• 30% to 70% funded: fair. Moderate risk. Most associations sit in this range.
• 70% funded and above: strong. Special assessments are rare.

If your number is below 70%, our guide to underfunded HOA reserves covers the causes and the steps to recover.

Why 100% Funded Does Not Mean You Can Replace Everything

Boards sometimes assume that fully funded means holding the full replacement cost of every component. It does not. Because components sit at different points in their life cycles, the fully funded balance is always well below the total replacement cost of everything on the list. In the example above, total replacement cost is $240,000, but full funding today requires only $100,000.

An association at 100% funded has simply kept pace with the wear that has already occurred. It still relies on future contributions to cover the wear that has not happened yet.

Why Percent Funded Changes Every Year

Percent funded moves even when contributions stay the same, because both halves of the ratio change:

• The reserve balance rises with contributions and interest, and falls when projects are paid for.
• The fully funded balance rises as components age and replacement costs are updated for inflation, and falls when a component is replaced and its effective age resets to zero.

A major project lowers both figures at once, and for an association that is below 100% funded, that usually pushes percent funded down for a time. This is why CAI's standards advise reading percent funded in the context of how it is trending under the funding plan, not as a single pass or fail score, and why the figure should be recalculated whenever the study is updated.

Percent Funded vs. Funding Goals

Percent funded is a status. A funding goal is the target your board sets for where that status should go. CAI's standards recognise four:

• Full funding: reaching and maintaining reserves at or near 100% funded.
• Threshold funding: keeping the balance above a chosen dollar amount or percent funded, such as 70%.
• Baseline funding: keeping the balance above zero throughout the projection. This carries the greatest risk.
• Statutory funding: setting aside the minimum required by a statute or lender.

Two associations can share the same percent funded today and be on very different paths, depending on the goal and contribution rate each adopts.

Where Percent Funded Must Be Disclosed

Some states require the figure to be reported to owners:

• California. Civil Code Section 5565 requires the reserve summary in the annual budget report to state, in boldface type, the percentage that accumulated cash reserves represent of the amount needed. It accompanies the Assessment and Reserve Funding Disclosure Summary form under Section 5570. California sets no minimum funding percentage; it requires disclosure.
• Washington. RCW 64.90.550 requires a reserve study to state the percentage of the fully funded balance to which the reserve account is funded, along with any current deficit or surplus on a per-unit basis.

Requirements differ elsewhere. Our Law Guide summarises reserve study rules state by state.

Frequently Asked Questions

• What percent funded should an HOA aim for? 70% or higher is considered strong. Many boards adopt a full funding goal and work toward 100% over time.
• Where do I find my association's percent funded? In the financial analysis section of your reserve study, usually stated as of the start of the fiscal year. In California it also appears in the annual budget report.
• Can percent funded be above 100%? Yes. A balance larger than the fully funded balance is a surplus, which often means contributions can be moderated.
• Does a low percent funded mean the board did something wrong? Not necessarily. It can reflect years of low assessments, rising costs or a recent major project. What matters is whether the funding plan is closing the gap.

How Reserve Study Group Can Help

Every Reserve Study Group report calculates your association's fully funded balance and percent funded, explains what the number means, and models the funding plans that will strengthen it. If your board wants to know where it stands, request a proposal and our team will be in touch.

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