The condo lifestyle is an excellent fit for many. In many cases (depending upon the area) a condo can be less expensive compared to single family homes. Condos also offer additional amenities such as workout facilities, outdoor recreation, swimming pools and more. These are typically items that individual homeowners would have to pay extra for. There is much less maintenance involved living in a condo as maintenance and repairs are handled by the project managers. Air conditioning not working right? No need to call the repair company, call management and it’s taken care of. While the condo lifestyle can be appealing to many, there are some things you need to find out before making an offer. Here are the top five:
Is the project FHA/VA/Conventional approved or otherwise “warrantable?”
When lenders review an application to finance a condo they also do some research on the viability of management and its financials. If a condominium project has already been approved by a previous lender and buyers used FHA, VA or conventional financing from Fannie Mae or Freddie Mac, the project is considered warrantable, which means the loan can be sold in the secondary market. A warrantable project has these features:
- More than half the units are occupied by their owners
- No single entity owns more than 10 percent of the total units
- HOA fees must be current and no more than 15 percent of the owners can be delinquent
- If there is any commercial space it must be limited to less than 25 percent of the total square footage
- There are no current or pending lawsuits
How many units are occupied by renters?
When a project is warrantable there is a requirement that no more than 50% of the units be rented. With any condo project the fewer renters living the building/community compared to the number of owners is generally considered to be more desirable.
Can I see a copy of the HOA association documents?
The HOA documents lay out all the rules tenants must follow. Minutes from board meetings are also available as well as the financials. Make sure there aren’t any rules that you can’t follow. Do you like to entertain? Are there any noise restrictions past a certain time of the evening? Can you be fined if there is too much noise coming from your deck? These and other guidelines need to be reviewed before you get too much further into the process.
Have there been any special assessments and if so, how many and when?
Your monthly HOA dues cover basic maintenance issues, pays for management and the caretaking of common areas. Sometimes however an unexpected event occurs and management needs to come up with some additional funds without having to empty the reserve account. Perhaps the HVAC system needed major repairs and each owner was asked to come up with some extra money. An occasional special assessment is common but multiple assessments can indicate an overly litigious association, a poorly managed property, or that the project is in poor physical condition.
Do you have sufficient insurance coverage?
Unlike insuring a single family home which covers the entire structure, insurance for a condo unit covers the interior areas of your individual unit, referred to as a “walls in” policy. The HOA must also maintain sufficient coverage to protect the physical and mechanical components but also carry a liability policy. Most lenders require there be at least a $1 million dollar liability policy in force.
When you are ready to talk about buying a condo, the loan officers at Sente Mortgage will be happy to provide detailed information about your borrowing options. Give us a call today.