Buying a condominium (condo) is a bit different than buying a home. When you own a home you are accountable to yourself (and maybe a neighbor or two), but when you own a condo you’re sharing living space and financial responsibilities with other owners. There is also a homeowners association that regulates activities and decisions for the building and owners.
From a mortgage perspective, both a condo and a home require an appraisal, but a condo building in and of itself must be approved for financing by the lender and is subject to specific guidelines. Owners of both homes and condos pay real estate taxes, but a condo owner pays monthly maintenance as well (may be referred to as dues).
As with everything, there are buildings that fit into “the box” and those that do not. In “the box” can save you money on the interest rate and closing fees. If possible, seek a building approved by Fannie Mae or Freddie Mac. Their guidelines vary and change all the time, but they generally require that:
Commercial space be 25 percent or less of the square footage of the building.
10 percent of maintenance be kept in reserves.
15 percent or less of maintenance not be more than 60 days late.
· 51 percent of the units in a new building will be owner-occupied, but this number is rising.
The building maintains property, casualty and indemnity insurances. You will still need to get “walls in” insurance on your unit.
There should be no pending litigation regarding safety, soundness of structure or functional use.
No single entity, such as a sponsor or investor, should own more than 10 percent of units, except in certain small unit buildings where a single entity can own two units.
Fannie and Freddie loan amounts for single-unit properties max out at $625,000, so greater loan amounts are classified as jumbo or super jumbo loans and are either more flexible or tighter on their requirements.
Short key condo buying suggestions:
Review the condo board’s minutes (notes) from their meeting for any indication of financial issues, repairs made or any other maintenance improvements. Check the overall condition of the building.
Ascertain if there are healthy financial reserves. Ideally, a reserve fund should cover 70-100 percent of anticipated maintenance costs. You want to avoid future increases in monthly maintenance or deferred maintenance.
Make sure that the monthly maintenance collected is high and paid on time by existing owners.
The building will have a master insurance policy, but you should consider getting a “walls in” policy (actually required by lenders) as well as additional coverage for personal property, special assessments from lawsuits or property damage.
Try and familiarize yourself with the condo association’s rules, e.g., pets, renting out your unit, trash disposal, noise and owner mix.
Condo living can be great, just…know your condo.
By Carl Guzman
Carl Guzman, NMLS# 65291, CPA, is the founder and president of Greenback Capital Mortgage Corp., a Zillow 5-star lender (http://www.zillow.com/profile/Greenback-Capital/Reviews/?my=y). He is a residential and reverse mortgage financing expert and a dealmaker with over 26 years of industry experience. Carl and his team will help you get the best mortgage financing for your situation and his advice will save you thousands! Visit him at www.greenbackcapital.com or [email protected].
