HOA Budgeting Mistakes to Avoid

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Here's our Top 10 things to avoid this budget season:

10. Treating ancillary income as primary income
An HOA budget needs to be balanced (revenue = expenses) but be careful of too much revenue coming from non-Assessment categories like Pet Registration Fee, Late Fee Income, and Pool Fobs. I’ve seen budgets quickly add tens of thousands of dollars to the budget in these categories, which usually results in under collecting and overspending.

9. Skipping rounding for contingency
Instead, just round up. Round up to the nearest 100 dollars, or ideally in 500-dollar increments. If each category is padded slightly, you have a helpful cushion for small surprises.

8. Overlooking utility increases
This is one of the easiest increases to plan for. Unlike smaller service providers or vendors, public utilities must publish their rates in advance of increases. If your community uses a retailer of natural gas or water provider, please pay special attention as these organizations are more likely to implement steeper increases year over year.

7. Assuming every project is funded by reserves
Reserve funds are extremely important, but they should not pay for every repair. Sometimes it makes sense to fund smaller projects through the operating budget and protect the reserves for the roof, boiler, or other big-ticket items.

6. Disregarding local cost-of-living metrics
Even for Associations that reliably spend within their budget, we always recommend at least a cost-of-living adjustment. The logic is that the cost of all services, utilities, and goods consumed will increase throughout the year. If the budget stays flat, the normal spending will be outpaced. We recommend looking at Consumer Price Index and other regional cost-of-living metrics.

5. Not reviewing year-to-date expenditures
Look for trends in what the association has actually spent. If a line item is over budget, ask why. Was it a one-time cost or is the higher spending likely to continue? If something looks under budget, don’t cut it too quickly. Some costs, like snow removal, can change a lot by season.

4. Underestimating insurance and financing fees
A steep increase in insurance is the single biggest offender of over runs, especially for older condominium associations. Talk with the insurance agent early about renewal expectations for the next policy year. Don’t forget to apply a financing fee to the premium if the association is going to pay monthly.

3. Overlooking the rising cost of deferred maintenance
Continual repairs to older mechanical systems (HVAC, boiler, sewers) and critical infrastructure (roofs, balconies, etc.) can become costly. Even if a system appears to be in fine operating condition, the budget should plan for both regular maintenance and potentially more extensive repairs.

2. Budgeting below mortgage eligibility requirements
Condo budgets can affect whether potential buyers can qualify for conventional mortgage financing.
Beginning January 4, 2027, Fannie Mae’s requirement for minimum reserve allocation increases from 10% to 15% of annual assessment income.

1. Failing to present clearly to owners
Most owners do not see the same financial details that the Board does. They often see one thing: the amount of their monthly dues. An effective Board should explain how the budget was built, what costs are changing, and why those decisions were made. This gives owners a more complete understanding and confidence in the budget process.