Let’s look at common lender red flags you may encounter when trying to purchase a condominium. And yes, it’s Day 4 of “Condo Week” on the Sacramento Appraisal Blog.
Five potential deal-killers for condo loans:
1) The owner-occupancy rate typically needs to be above 50% for both FHA and conventional loans.
2) If there is pending litigation against the HOA, it could be a deal-killer for the loan.
3) If the HOA does not have a sufficient budget or there are HOA fee delinquency rates above 15%, that’s not going to be good for your loan.
4) If you are getting an FHA loan, make sure the condominium complex is on HUD’s approved condo list.
5) No more than 10% of units in a complex can be owned by a single owner.
I asked Senior Mortgage Advisor Chad Focht to give us a little more insight from the trenches of his experience in condo lending.
The biggest misconception that most people have about condos is that if it’s not on FHA’s list of approved condos, there is no way to do an FHA loan with that condo. Here at Mason McDuffie we have a special department that focuses on condo lending and helping buyers and realtors navigate through the unique aspects of condos loans. When a condo isn’t approved, we can do what’s called a spot approval. The process works much like an underwriter approving a loan. We will gather all the needed documentation and look at the project to make sure it’s a healthy and successful project. The last thing that we want is one of our buyers purchasing a unit in a complex that isn’t collecting enough funds (HOA dues) to support the maintenance and repairs or isn’t putting enough money into their reserve accounts. If the condo is on the FHA approved list already, it’s actually a quick and simple process to complete the loan. Here are a few things we need to verify: 1) To make sure the complex isn’t involved in any litigation; 2) That the delinquency rate is below 15%; and 3) That there is proper insurance on the condo project. This is something we collect for everyone to make sure everything is in order. If you have any questions, call my cell at 916-798-1234, office at 916-266-4181 or connect with me on my website.
What other condominium loan issues have you encountered? Your comments, insight and questions are welcome below.