Condos are a Different Animal
Very often, I work with buyers who are more focused on specific property characteristics (e.g. square footage, # of rooms, interior upgrades, price, location, etc) than the type of property they purchase. They’d equally entertain a house or a condo with no strong preference either way. This is particularly true of seasonal “snow bird” residents, who tend to have stronger preferences for location.
Any home buyer who’s considering a Phoenix condo should be aware that they require a different set of considerations than a traditional home, patio home, or even townhouse.
For starters, lending guidelines have tightened across the board, but remain particularly strict for condos. The owner 0ccupancy rate, reserve fund balance, dues delinquency rate, etc, all come into play in the underwriting process. The guidelines are so strict that I know of reputable lenders who won’t even take applications for condo purchases.
Compounding the problem is that you’d think you could just call someone at the property management company to determine if a unit qualified for financing, right? Unfortunately, no. Even though I (as a Buyer’s Agent) can do some tax record research to assess the possibility of a condo qualifying for mortgage financing, the actual answer won’t be clear until the lender receives the HOA questionnaire from the property management company. And since some of the variables change monthly, so can a property’s suitability. Even if tax records and the property manager indicate there have been recent financed sales, a change in numbers could cause a property to no longer qualify once the underwriter actually reviews the questionnaire.
And here’s the kicker: The property management company charges fees of $150 and up to put the packet together and send it to the lender, and even more for expedited turnaround. Though almost everything is negotiable, it’s customarily the buyer who pays for the HOA packet.
So a buyer could go through the emotional process of negotiating an offer, arriving at an acceptance, conducting (costly) inspections, making arrangements to move, and then learning late in the process that their condo won’t qualify for financing. Even though the Purchase Contract’s financing contingency calls for a refund of the buyer’s earnest deposit, the fees (emotional and financial) paid up until that point cannot be recovered.
Now, what about cash buyers? Indeed, underwriting guidelines are irrelevant to cash buyers. However, cash buyers and non-cash buyers alike face some due diligence concerns that are especially important with a condo purchase:
- Budgetary and financial health of the community
- HOA fees and what do they cover
- Special assessments?
- Common area maintenance
- Specific CCR and bylaw restrictions (e.g. no rentals allowed or no BBQs on patios)
So if you are in the market for a condo and will be taking out a mortgage on the property, be sure to have a detailed conversation with your lender before you begin your search. That could save you valuable time and effort.
And if you move forward, regardless of the type of financing, ask your real estate agent what specific questions they’d recommend you ask to supplement yours when you call the HOA.