If the percentage of renters in a community exceeds 50%, what percentage of HOA budgeted income must many lenders require for reserves?

When the percentage of renters in a community exceeds 50%, it signals to lenders that there may be a higher risk associated with the property, as owner-occupied homes typically signify stability and a commitment to maintenance and care for the property. In such situations, many lenders require homeowners' associations (HOAs) to maintain a more considerable reserve fund to ensure the financial health and management of the community.

The stipulation that 20% of the HOA's budgeted income must go to reserves in communities with more than 50% renters serves as a safeguard for lenders. It provides reassurance that there are adequate funds available for unexpected repairs, maintenance, and other community needs, which could be a concern in predominantly rental communities.

This requirement reflects prudent financial management and helps protect both the residents and the lenders from potential financial shortfalls. If the reserves are not adequately funded, it could lead to increased special assessments or financial distress within the community, which is why this high threshold is established.