When looking to purchase a home in a condominium project, there are a few things to consider. Condominiums are treated a little differently than a single family detached or even an attached home in a homeowner’s association subdivision. The overall financial health of the condominium association is scrutinized. As a result, the project must be acceptable by guidelines put in place by Fannie Mae, Freddie Mac, FHA or VA. The scope of the guidelines and the specific eligibility criteria are dependent upon whether the condo project reviewed is an established community or new construction. I am going to focus on established projects and conventional guidelines. Below are guidelines for such condo projects:
• at least 90% of the total units in the project have been conveyed to the unit purchasers;
• the project is 100% complete, including all units and common elements;
• the project is not subject to additional phasing or annexation; and
• Control of the homeowners’ association has been turned over to the unit owners.
Some General Questions to ask about the Condominium Association
• Is there current litigation involving the association?
• How many units are investor units out of total count?
• Are there more than 15% homeowners 30 days or more delinquent in association fees?
• Does any single entity own more than 10% of the units?
By getting answers to these few questions, you may find out sooner than later whether you will have difficulty obtaining financing for the home you want to purchase.
Condo Insurance Requirements
The condo project insurance policy must ensure the homeowners’ association maintains a master or blanket type of insurance policy, with premiums being paid as a common expense. The insurance requirements vary based on the type of homeowners’ association master or blanket insurance policy. Also, be aware there must be a fidelity bond coverage or employee dishonesty coverage which covers against theft by those entities handling community funds. As for unit coverage, there are a couple of types available and you must check with your lender for what is required:
“All-In/Single Entity” (sometimes known as an “all-inclusive”): The policy must cover all of the general and limited common elements that are normally included in coverage. These include fixtures, building service equipment, and common personal property and supplies belonging to the homeowners’ association. The policy also must cover fixtures, equipment, and replacement of improvements and betterments that have been made inside the individual unit being financed. If the unit interior improvements are not included under the terms of this policy type, the borrower is required to have an HO-6 policy with coverage, as determined by the insurer, which is sufficient to repair the condo unit to its condition prior to a loss claim event.
“Bare Walls”: This policy typically provides no coverage for the unit interior, which includes fixtures, equipment, and replacement of interior improvements and betterments. As a result, the borrower must obtain an individual HO-6 policy that provides coverage sufficient to repair the condo unit to its condition prior to a loss claim event, as determined by the insurer. Depending on the type of loan you choose there can be a requirement for flood insurance.
Buyers need to know this information when looking into purchasing a condo. To determine eligibility for your condominium contact your lender and discuss what information you have and need to obtain for a smooth transaction. This adds an additional step to your mortgage process so make sure you have sufficient time to process your loan application.
For questions or suggestions please feel free to email me at Ingrid.Quinn@CobaltMortgage.com or visit me at either http://www.ScottsdaleMortgageExpert.com or http://www.CobaltMortgage.com/IngridQuinn