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Be Nice To Your HOA


If you are financing the purchase of a condominium unit, you are going to need help from the homeowners’ association (HOA). A property management company is often hired to manage the affairs of the complex, but the HOA is ultimately responsible for many things – including:

  • Building structure, machinery and equipment (roof, HVAC, security, electrical/mechanical)
  • Common areas (lobby, pool, work-out facilities, BBQ area, landscaping)
  • Other functions (insurance, accounting, budgeting, approving leases, collecting HOA fees)

Your lender will require a detailed project review whenever your down payment is less than 20%, or if your condo will be a rental property. This means the HOA will likely need to provide you with several documents (e.g., bylaws, financials, master insurance certificates) and complete a condo questionnaire to confirm that:

  • There is no existing or pending litigation
  • Sufficient reserves exist in the repairs and maintenance budget
  • The condo does not have short-term “hotel-type” rentals
  • No more than 15% of the owners are delinquent in their association fees
  • One owner does not own more than 10% of the units

The questionnaire takes time to complete, and so the HOA may charge you a fee for doing so. But in the end, knowing everything about your purchase will protect you from unforeseen events – including special assessments for which you may be responsible right after your purchase.

In addition, the HOA’s insurance agent will need to provide you with written evidence that the condo master property and liability insurance also applies specifically to your unit being purchased.

Here’s the Point: When you purchase or refinance a condo, there are several reasons why you will want the homeowners’ association on your side.

Condo Loan Craziness

Just because you have good credit, low debt-to-income ratios and a good size down payment, don’t think that qualifying for a purchase mortgage on a condominium will be a breeze. It may not be you that the Federal National Mortgage Association (FNMA) is concerned about. Since FNMA is the likely buyer of the mortgage advanced by your lender, they are fastidious about how the condo homeowners association (HOA) or property management company is managing the affairs of the building.

There are some rules you should know before making an offer:

  • If you intend the condo to be an investment property, over 50% of the units in the building must be owner-occupied.
    WHY? Owner Occupants look after their units and are less apt to default on their mortgages
  • If the building offers in-room housekeeping and concierge services, FNMA will assume the condo is operated as a hotel and your loan will be declined.
    WHY? Short-term rentals (daily/weekly/monthly) are prohibited – whether offered by the HOA or the unit owners (and if the latter, the HOA will need to police this use)

It is not easy for the HOA to monitor the number of rental units – in which case the appraiser will need to make what is often an unreliable estimate. If this estimate is high, it triggers a red flag in the eyes of the lender. Letters of explanation and verbal confirmations will be required, thereby causing substantial delays and increasing the odds that your loan may not close.

Here’s the Point: Need a loan to buy a condo unit? If the building offers short-term rentals, chances are you won’t get your loan.