Buying a Starter Home

Want to Buy a Condo with a Conventional Mortgage? Questions to Ask the HOA

19 September 2016

Capucine Leroux

If you are interested in buying a condo with a conventional mortgage, it's important that you ask several important questions to the homeowner's association of the developments that have condos for sale. The reason is because sometimes mortgages for condos are unable to be insured due to issues with the HOA, which means that conventional mortgage lenders won't be able to give you a loan. Here are a few vital questions to ask the HOA. 

Can you get a copy of their budget? 

Seeing the budget is a great way to understand how the HOA handles the money from the dues of the homeowners. But, more importantly, you'll be able to see several important things that could prevent your mortgage from being insured by Fannie Mae, Freddie Mac, or the Federal Housing Administration. These agencies back mortgages by insuring them, but they will only do so when specific standards are met. 

One of these requirements is that the dues are being paid by a large majority of the homeowners. If a large percentage of the homeowners are delinquent, this means that the HOA may not be able to cover the costs of repairs and maintenance to the building and the facilities. For this reason, agencies and mortgage companies won't want to take the risk. 

Of course, even if you can secure a mortgage for a condo in the development, there's still a concern about the delinquency in dues, as it could pose a problem for you if the HOA finds it necessary to cut back on various expenditures, like insurance premiums on community property, to make sure that regular maintenance and emergency repairs are done. For example, if there's only enough money in the budget to pay for either repaving the parking lot or for cleaning the pool, the parking lot will likely win. 

How old is the building, and was that the last time a tax assessment was done? 

It's important to find out how old the property is, partially because this information may give you an idea of how much maintenance and repairs may be needed in your condo, in the building, and in the various common areas around the development. More importantly, you'll want to know if the last tax assessment was done when the development was built, just as you would if you were buying a traditional detached home. 

This may give you an idea of whether another property-tax assessment will be done in the near future so you can be prepared for the possibility of sticker shock when you get your tax bills. Keep in mind, also, that part of the dues you'll pay to the HOA will cover taxes based on the common areas of the development. Most mortgage lenders will include the cost of property taxes when they do their calculations to determine whether or not you'll be able to afford the condo. 

What percentage of the condos is owned by property investors? 

Another issue that could prevent your ability to secure a mortgage is the ratio of property investors as compared to homeowners in the development. This is also another thing that the agencies that insure mortgages looks into. According to Mortgage Reports, at least 51% of all units need to be occupied by homeowners. Condos are unwarrantable in development in which more than 49% of the condos are owned by property investors and leased out to tenants, which means you'll find it difficult to secure a traditional mortgage. 

If you find that the requirements for a conventional mortgage won't be met, you may still be able to get a portfolio loan, which is a loan in which the lender assumes the risk instead of Fannie Mae and Freddie Mac. You can learn more about portfolio loans from your mortgage broker. 

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