Many home buyers start looking for condos assuming that the lending world is the same for a condo or a home. It is not. Fannie Mae, the largest purchaser of U.S. loans, has added some requirements that single family home buyers don’t have to be concerned with. Here are some cases where your loan may get delayed, or even denied:
- Too many investors. Fannie Mae requires that 50% of all condos in the condo development be used as a primary or second residence. Unfortunately, some homeowner associations do not track this well, counting any condo that is owned by an out-of-state owner as an investment property. Good lenders are able to make a case for these second home scenarios that might cause the condo community to fail at this metric.
- Too many delinquent owners. Though we see this problem much less in Scottsdale than in the late 2000's, there are still communities that occasionally have more than 15% deadbeat owners - that is, owners not paying their homeowner assocation dues. Unfortunately, there is no way around this problem, but it usually gets worked down over time once those deadbeats either sell or go to foreclosure.
- Low reserves. Condo HOAs are required to have a set amount of money in their reserves, which is a fund used in case their is a major repair needed, like when we had that hail storm a few years ago. Unfortunately, we often find this out during escrow. Low reserves are a red flag that may point to a poorly managed HOA.
- Condos with one owner owning more than 10% of the units. Sometimes an owner loves his condo development so much that he bought a bunch of units to rent out. Usually this is not a problem unless the condo community is very small. The threshold for lending difficulty is 10%.
- Lawsuits where the HOA is the plaintiff or the defendant. Unfortunately, this happens more than we would like, but the good news is that not every lawsuit has to stop condo lending. Lenders will usually evaluate whether a lawsuit is frivolous or not.
It's important to work with a Scottsdale real estate agent that understands the condo market and with lenders that work harder to get loans approved in these communities.