Did you know when you apply for a loan there are actually 2 approvals that take place?
The lender reviews the file based on your credit and income, and also reviews the collateral. The collateral must be sufficient in order for a loan to be approved. When the collateral is a condominium, there is increased scrutiny by the lender. This is due to the fact that a condo typically has shared walls, ceilings, or floors, and there is more risk to the lender because the loan is somewhat dependent on the status of the units surrounding the condo. Thus, lenders will ask questions of the Homeowners Association (“HOA”) regarding the condominium complex to evaluate whether they want to accept the risk and make a loan on the property.
The following are some of the questions asked by the lender:
- Whether at least 51% of the units in the condo project are owner-occupied
- Whether any single investor owns more than 10% of the units
- Has the Association budgeted at least 10% of their annual income to be transferred to reserves
- Whether the common areas are 100% complete
- Does the project contain any commercial space
- Does the project operate like a hotel, i.e. is there a rental desk in the lobby, cleaning service, and other hotel-like amenities
- No more than 15% of the units are more than 30 days delinquent in the payment of HOA dues
- Is the HOA involved in any litigation
- The amount of reserve funds for future repairs and/or
- If a conversion or converted in the last 3 years, is the
- renovation 100% complete and completed in a workmanlike manner
Further, if you are applying for a FHA or VA loan, the condo must be on their approved list to qualify. The FHA condo approved list can be found at:
The VA condo approved list can be found at: https://lgy.va.gov/lgyhub/condo-report
If you are uncertain as to whether a condo qualifies, contact us and we can help.
We offer a variety of products and services, ask us how we can assist you today:
Counsel Mortgage Group®, LLC
AZ MB #0909580
CA DBO #60DBO43873