Looking to buy, sell or refinance a condo? 

There are some big changes that have happened with condo lending guidelines. Read more for the details

Lenders have always required a Condo Association to fill out questionnaires about how the HOA is run and the financial stability of the complex. However, in a memo released by Fannie Mae, they are cracking down on condos with deferred maintenance and/or condos that have experienced hurricanes, floods, or storms. This is a risk-mitigating factor that came about from the tragic collapse of the condo complex in South Florida.

There are a few areas that lenders look at when determining if financing can be obtained on a condo project. The amount of down payment often will determine how many questions the lender asks. However, some common areas that are reviewed are:

  1. Hotel/motel/resort activities, mandatory or voluntary rental-pooling arrangements, or other restrictions on the unit owner’s ability to occupy the unit
  2. Is the project 100% complete, including all construction or renovation of units, common elements, and shared amenities for all project phases?
  3. Pending litigation
  4. Unit owner delinquency rate on assessments?
  5. The proportion of owners that are residents versus investors
  6. The proportion of revenues are set aside for reserves
  7. Master Insurance coverage

What has changed?

  1. More scrutiny is going to put on reviewing the project for deferred maintenance. This could include obtaining engineer’s reports, meeting minutes, or other information that will determine if the HOA is aware of any maintenance items that are unrepaired
  2. Financial security is going to be a focus as well. If there are special assessments that are being passed along to owners, the lender is going to question what the assessments are for and if it is a matter of financial mismanagement or repairs that have to be undergone
  3. If an HOA does not budget at least 10% of annual income towards a reserves account for future maintenance and repairs, then it will be very difficult to find financing. Previously, alternative documentation could be provided to show the HOA had sufficient funds already saved or that a reserve study was done to support a lesser contribution amount. That is no longer the case.

It is very important to talk with your lender as early on as possible if you are looking to finance a condo to know what questions need to be asked of the association or the seller.

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