Forget the fact that we’re experiencing unprecedentedly low mortgage rates right now. Forget the fact that homes are more affordable now than they have been in years past. Forget the fact that I’ve been telling you every single Thursday that you should refinance or buy a home now. As if those aren’t strong enough reasons to get a mortgage or refinance, closing costs also dropped.
When purchasing a new home you have many things to take into account, such as location, cost, risk, financing, and more. If you decide to buy a condominium, some lenders have certain limitations when financing a condo purchase. Keep this in mind in order to avoid problems with your home loan financing.
Here is a list of things you need to avoid as you shop for your new home. If you encounter any of the items on this list, it may be wise to walk away and look for a different home.
Owning a condominium is great for those that don’t mind paying HOA (Homeowners Association) Fees in order to get certain amenities, such as a pool, gym, lawn care and other maintenance-related services. On the flip side, condominiums are also regulated by the Homeowner Association policies. Some have strict guidelines in terms of what you can do to the exterior of the building, such as satellite dish placement or gardening.
If after doing research, you decide that buying a condominium is for you, make sure that you avoid these ten things in order to make the home loan process easier for you.
Buying a Condo: Ten Things to Avoid
- The project is still under construction. Some lenders require that the community or complex is completely finished in order to finance it.
- The project doesn’t have 90% of units sold. Certain types of loans, such as conventional loans, require that most units in a complex be sold before the loan is approved.
- The association is still under the developer’s/builder’s control. Some lenders may require that the Homeowner Association be under a property management company, instead of the builder’s control.
- The complex has hotel amenities. Certain services such as concierge, front desk, room service, maid services and short-term vacation services may hurt your eligibility to get financing for a condo.
- The Homeowners’ Association doesn’t have enough money in their reserve account. The HOA doesn’t put at least 10 percent of the annual income into a reserve account.
- More than 15 percent of the unit owners are 30 days or more delinquent in their HOA dues. This could mean trouble in the future because if condo owners are delinquent in their dues, the HOA may not be able to keep enough money in their reserve account.
- The association has pending litigation. Lenders will shy away from financing a condo purchase if there’s litigation against the HOA. If you’re thinking about buying a condo, make sure you ask your agent about any Association issues.
- The association doesn’t carry sufficient Fidelity coverage. Fidelity insurance is a requirement to protect the association against inappropriate use, embezzlement or stealing of the association funds by the board members. Lenders need to make sure that there is enough coverage before they approve a loan for a condo.
- The complex is not FHA approved. This only applies if you’re thinking about getting an FHA loan to buy the condo. However, even if you don’t get an FHA condo, it may affect future buyers who may want to use an FHA loan.
- You’re thinking about renting the condo in the future and the association doesn’t allow it. If you’re purchasing a condo with the goal of eventually using it as an income property, make sure that the association allows it.
Keep these things in mind as you shop for a mortgage lender for your new home purchase in order to save you time and stress. If you have any questions, let us know or contact one of our Home Loan Experts.