PMI companies look at condo associations
Why should I care about owner occupancy? I have a big down payment.
Even if you have a large down payment (and don’t need PMI), you should think about owner occupancy of the condo association you are thinking of buying in. The actuaries that work for the PMI companies spend all day trying to identify a bad risk. Maybe they know something...
Generally, lenders and PMI companies like to see a high percentage of owner occupancy in a condo association. 50 percent has been the norm. They also want to see that the other 50 percent is not owned by one entity, like the developer. Why does this matter?
First, life in the building
No disrespect intended to renters or landlords; PMI companies believe that buildings with more renters can get run down more easily. I’ve seen it. It can be a simple as having no one keeping up with the names on the mailboxes; little stickers can look shabby; junk mail fliers sit on the floor in the lobby. The bigger problem is a combination of renters caring less and their landlords wanting to keep the condo fees down. Low fees can lead to less maintenance, less heat in the common areas, no rush-orders to repair the elevator, and such. It gets worse if the landlords (or the owners who live there) stop paying their condo fees. That’s why you don’t want one person or entity to own a huge chunk of the association; if they get in trouble, you are sinking with them.
Second: resale
High owner-occupancy does not automatically mean the association is well run, but it is a measurable sign. A well-run association can help the value; poorly run ones can hurt it. Sellers in an association with a big work project coming up must disclose it. So, deferred maintenance hurts resale. Condo associations are supposed to have reserves for expected periodic maintenance (like a roof every thirty years.) Many do not.
In addition, remember those PMI companies? They are not going to insure a borrower in a condo complex that seems risky to them. So, upon resale, your pool of borrowers is reduced if you are selling in a complex that has too many renters.
If you live in a condo, tell us if you think the PMI companies are right about owner occupancy. If you are a buyer, have you been shut out of buildings because they don't meet PMI guidelines?
Thank you to my sources at Asset Mortgage Group, Mortgage Master and Monument Mortgage.
Comment
Permalink
Email
Dead on Rona, in addition to private MI companies is FHA insured loans. You are not just buying the condo itself but you are also buying into an association as a partner. No one likes to be a minority partner. Another tidbit, entities that own more than one unit also have more than one vote.
PMI companies are right about owner occupancy. If the developement does not account for big ticket upkeep (roof), the potential buyer is putting themselves at risk unless they have the additional dollars to cover a substantial assessment coming their way. A word of caution to buyers, look for a developemen that limits the number of units that can be rentals. Don't fall a developer that does not limit the number of rentals and instead has a minimum year lease with no limit on rentals. The developer is looking out for the develper not the owners. If the units don't sell, he can rent out all remaining units and there goes the value of your property.
yep. Part of the buying a condo routine is you have to pay a great deal of attention to the association - as per above you are basically signing on to be business partners with them.
Most small Boston condos in the south end and back bay are run with appalling financials - no reserve for expected maintenance being the norm.
I doubt Cambridge would be much different
I've seen - and shown - a lot of condos in the towns west and south of Boston, and all the complexes, except for one, allowed rentals.
The one that did not allow rentals (in Braintree) was far and above the best maintained, with an immaculate entryway and hallways that resembled a high-end hotel. And....very noticeable - NO COOKING SMELLS IN THE HALLWAY. Not a weed in the landscape, either. My clients loved the condo and the complex, but wanted to have a rental option in case they were relocated, so they're still looking.
That said, I always get the owner-occupied information on condos - existing and allowed, because I feel it is a factor in a purchase decision for an informed buyer, and when I'm listing it's info I need to be able to provide. Condo units themselves don't vary a whole lot, but the complex and associations have wide variations (IMO).
This blogger might want to review your comment before posting it.
Recent Posts
browse this blog
by categoryINside Boston.com