I’m Buying a Condo in Glenwood Springs. Can the HOA Effect My Mortgage Approval?

You’ve found a condo in Glenwood Springs you like. Your income, credit and assets look good, and you’ve been pre-approved for the mortgage.

So you're good to go, right?

Not necessarily.

One of the surprises for some condo buyers is that the lender may be evaluating more than the borrower.

The condominium project itself may also need to meet certain requirements.

And that means issues involving the HOA can potentially affect your financing.

The Short Answer

Yes. The HOA and condominium project can affect whether a particular condo is eligible for certain types of mortgage financing.

Depending on the loan program, transaction and type of project review required, the lender may need information about the condominium project itself.

That can include things such as the HOA's finances, insurance coverage, special assessments, litigation, property condition and other characteristics of the project.

This doesn't mean you should be afraid of buying a condo.

It means that when you're financing one, there can be additional pieces to evaluate beyond your own mortgage qualifications.

Why Does the Lender Care About the HOA?

When you purchase a condominium, you own your individual unit, but you're also financially connected to the larger condominium project.

The HOA is typically responsible for maintaining and insuring certain common elements of the property, collecting assessments from owners and managing the association's finances.

If the association has significant financial, insurance, legal or property-related problems, those problems can potentially affect the project and its individual owners.

In fact, Fannie Mae treats project eligibility risk as something distinct from the credit risk presented by the individual borrower.

From a mortgage standpoint, that can create two different questions:

“Does the borrower qualify?”

and

“Does the condominium project meet the requirements for this financing?”

What Can a Lender Review?

The exact review depends on the loan program, transaction and condominium project, but there are several areas that can matter.

HOA Financial Health

A lender may review aspects of the association's finances, including its budget, reserves and whether owners are delinquent on HOA assessments.

The concern isn't simply how much the monthly HOA dues are.

The bigger question is whether the association appears financially capable of meeting its obligations and maintaining the property.

Insurance Coverage

Insurance is another important part of condominium financing.

Depending on the applicable requirements, the lender may need to evaluate the condominium project's master insurance coverage, including whether the type and amount of coverage are sufficient.

This is separate from any individual unit-owner coverage that may also be required.

Special Assessments

A special assessment doesn't automatically mean a condo can't be financed.

But the lender may need to understand why the assessment exists, what it's paying for and whether it points to a larger financial, structural or property-condition issue.

For a buyer, there's another important question:

Who will ultimately be responsible for paying the assessment?

That's something worth understanding before closing.

Pending Litigation

If the HOA or condominium project is involved in litigation, additional review may be necessary.

Not every lawsuit makes a project ineligible. The nature of the litigation matters considerably.

For example, litigation involving safety, structural soundness, habitability or functional use can create serious eligibility concerns, while certain minor matters may be acceptable under applicable guidelines.

Property Condition

Significant deferred maintenance, critical repairs or concerns involving the safety or structural integrity of the project can also affect financing.

Freddie Mac, for example, requires sellers to determine that a project is not in need of critical repairs and meets applicable requirements concerning structural soundness, safety and habitability.

Other Project Characteristics

Depending on the financing being used, other characteristics of the condominium project may matter as well.

That's why two condos that look very similar to a buyer can sometimes be very different from a mortgage standpoint.

Why This Matters Before You Make an Offer

Here's where I think buyers can save themselves a lot of frustration.

Don't wait until the end of the mortgage process to start asking questions about the condo project.

When possible, I want to identify potential project issues early.

If you're considering a condo in Glenwood Springs, information such as the property address, HOA name and listing can give us a place to start.

Depending on the situation, we may then need additional information or documentation from the HOA or its management company.

The earlier we identify a potential issue, the more time we have to understand it and determine what options may be available.

What Is a Condo Questionnaire?

You may hear your lender ask the HOA or management company for a condo questionnaire.

It's one method lenders can use to gather information needed to evaluate a condominium project. Fannie Mae, for example, maintains standardized condo project questionnaires as part of its project-review process.

Depending on the type of review being completed, additional documents or information may also be needed.

The important thing for a buyer to understand is that this isn't simply paperwork for the sake of paperwork.

The information can help determine whether the condo project meets the requirements of the financing being used.

What If There's a Problem With the HOA?

A concern discovered during the condo review doesn't automatically mean the transaction is over.

The next question is:

“What's actually causing the problem?”

Some issues may be resolved with additional documentation or clarification.

Others may affect eligibility under a particular loan program or lender's requirements.

And some project-level issues can make conventional financing more difficult until the underlying problem is resolved.

That's why I don't like giving a buyer a simple yes-or-no answer without first understanding the issue.

The details matter.

My Underwriting Perspective

This is one of those areas where my background as a senior mortgage underwriter influences how I approach a transaction.

Getting a buyer pre-approved is important.

But a strong pre-approval doesn't eliminate every potential issue with the property they're purchasing.

With a condo, I want to think about both sides of the transaction as early as possible:

Does the buyer qualify for the financing?

And does the condominium project work with that financing?

Finding out early is considerably better than discovering a problem a few days before closing.

The Bottom Line

If you're buying a condo in Glenwood Springs, yes—the HOA and condominium project can affect your financing.

Your personal qualifications are only one part of the transaction.

Depending on the financing and type of project review required, the lender may also need to evaluate the condominium project's finances, insurance, assessments, litigation, property condition and other characteristics.

That doesn't mean condo financing needs to be complicated.

It means the project should be evaluated early enough that potential issues don't become last-minute surprises.

Have a Condo You're Considering?

If you're looking at a condo in Glenwood Springs and want to know whether there could be financing concerns with the project, send me the property information.

You don't need to wait until you're under contract to start asking questions.

Sometimes identifying an issue early can make all the difference.

Contact Scott

Serving homebuyers in Glenwood Springs and throughout the Roaring Fork Valley and Western Colorado.