When you purchase a traditional free-standing single-family home, the lender bases their decision to lend money for the home purchase on personal financial qualifications and the current market value of the property. When purchasing a condo a lender will also look into the health of the condo association’s current finances in their decision to approve a home loan for the property.
When someone purchases a condo unit they are not purchasing the land that the condo building is sitting or the outside structure of the entire building. A condo owner is actually purchasing a percentage of the association. All of the costs of upkeep in the condo community increase with time and the amount a condo owner is responsible for depends upon their percentage of ownership.
If an association has a few owners that are not paying their dues, it should be a red flag to anyone considering purchasing a condo. This could mean the condo association is behind on bills and if a major repair in the community is needed the members who are paying their bills will be stuck covering the costs.
Lenders are very aware of the risk of purchasing a condo in a building that has a condo association with less than healthy financials including no reserve funds. These financial truths can negatively impact the ability of interested buyers to secure financing for a condo unit in the community.
Even if the condo owner selling the home has always paid their dues on time. Lenders refer to it as looking into the association’s delinquency rate.
Fannie Mae and Freddie Mac have limited review option mortgages that skip looking into the delinquency rate of a COA. An FHA loan will require that no more than 15 percent of the units in a community be more than 60 days past due on current association fees. If a community cannot pass FHA standards it is a sure sign of a condo facing large difficulties to sell.
Related: 4 Major Tips for Condo Buying
Purchasing a Condo When the Owner is Past Due on Association Fees
If you are trying to purchase a condo from an owner that is delinquent on COA dues, it will be increasingly difficult to secure a mortgage. In some areas associations can place liens on condos with unpaid dues. This can cause mortgage denial or delay until the dues are brought current.
Before putting your condo on the market or making an offer on one it is a very good idea to look into the records of the Condo Owners’ Association to see if it is in good financial standing. For help finding the current financial status of a condo association, you can ask an experienced Realtor@.