If you would like a home where you won’t have to worry about lawn care, snow plowing, or multiple other homeowner responsibilities, a condominium may be for you.
In most cases if you need financing the bank will want to see if the condominium is “warrantable”, which means making sure that the Home Owner’s Association meets specific criteria to ensure that it isn’t a risk to the bank or you. Items that the bank is interested in to determine this is the amount of insurance coverage the HOA carries, how much they have in reserves based on their annual budget, are there an excessive number of rentals in the association/community, does any one individual or developer own 10% or more of the units, is there more phasing to be done, has the HOA been turned over to the homeowner’s, are there any lawsuits, just to name a few, and using Fannie Mae or Freddie Mac as a guide. This isn’t just important to the bank but it’s also important to you.
One example; if there weren’t enough reserves to make repairs you may be responsible for a special assessment. How a bank determines this is by the collection of specific documentation; a copy of the budget, the by-laws, the HOA’s insurance policy, having a “condominium questionnaire” completed where a number of questions are asked to help assess it, again, just to name a few. Ideally, the majority of the documents needed would be provided to you when you have an accepted offer by the seller so that you are able to determine if you are able to obtain financing right away. All of the documents the bank needs are not always available, and in that scenario the bank will obtain what is needed, usually at a cost to you. Most HOA’s will charge a fee to provide the information or they utilize the services of a third party vendor that will provide the documentation, also for a fee.
Some banks will make an exception if the HOA isn’t warrantable depending on what the reason is that is presenting an issue. They may be able to do the financing with a larger down payment or with private mortgage insurance – the bottom line is there are a lot of variables and it may not be something that you will discover at the beginning of the loan process. If there is a problem and the bank you are working with will still allow for financing you will need to determine if you want to proceed, knowing that if you decided to sell it in the future and the issues that came up when you purchased it still exist, you may have a problem selling it.
You want to be as informed as possible when purchasing any type of home, but condominiums might require a little more consideration. A condominium may afford you the lifestyle that meets everything on your checklist – do your homework, it could be perfect!
