In fact, it starts long before you put it on the market. If you didn't research your condominiums home owner association before you purchased, and/or weren't actively involved during your ownership, you could have a very difficult time selling. I have seen it happen too many times; a seller has a willing & qualified buyer, they have agreed to a price, and are ready to move forward with the sale. Then, to the dismay of both parties, they find out that the home owners' association doesn't "qualify" for the loan. So what does that mean? Most loan programs have strict standards to meet when it comes to the purchase of a condominium. (Especially the popular loan programs through Fannie Mae, Freddie Mac & FHA loans).
Potential reasons why a loan might be denied due to the HOA:
- The home owners' association doesn't have enough reserves (money set aside from HOA dues to cover maintenance or repair costs)
- Too many investors in the complex. The lender must consider the fact that renters may not take care of the property properly because they have no ownership interest. Also, there is the potential for low reserve funds. While homeowners don't necessarily want to see HOA fees go up, investors especially don't. To an investor, $50/month on 10 properties = an extra $500/month. The problem? If there are not enough fees collected, the reserves could be depleted pretty quickly.
To avoid potential problems when selling, there are 2 major things to consider:
- Use a realtor to help you research the HOA before you buy. Your real estate agent can get information from the condo association. Red flags:
- If fees are low or aren't going up with inflation. This could mean there may not be enough in reserves. (Even if you never intend to sell, if a maintenance project comes up that the reserves can't cover, you may be expected to pay a special assessment. This could be thousands of dollars).
- Too much debt, and a lot of delinquent home owners
- Inadequate insurance
- Pending lawsuits
- Special assessments
- Become active in your association from day 1
- Become either a board member or an active member who attends meetings, and/or volunteer for a committee
- The HOA can set limits on those who invest, conduct reserve studies, decide on HOA fees, etc
- Be informed of upcoming projects and/or make suggestions
- Get to know your board members and other owners
Cornerstone Mortgage does offer loans for warrantable (eligible for Fannie Mae, Freddie Mac or FHA) & non-warrantable condos. But remember, if you purchase a non-warrantable condo, it may be difficult to sell in the long run.
Your realtor and lender are valuable resources, so use us! Feel free to contact me at any time with questions.
Sincerely,
Chris Scheer
Your Residential Lending Team
