If you’re looking a buying a property in the Boston area, you’ll likely be checking out some condos. As discussed on this blog, the Boston market is extremely hot and condos are one of the reasons why. Many buyers are priced out of single family residences and therefore look at condo units to purchase. Buying a condo in Boston is a different process than buying a single family. Not all condos are eligible for traditional mortgage financing. Why Not?
When you apply for mortgage financing, both you (the borrower) and the property you are purchasing must be approved for financing. When the property is a condo, all aspects of the unit you are attempting to purchase, as well as the condo association itself must be approved. There may be nothing wrong with your individual unit, but there could be issues with the condo association itself.
We asked Craig Barber of Fairway Independent Mortgage for some of the more common reasons a condo unit may not be eligible for mortgage financing.
- Condo association does not have adequate reserves in their association budget.
- Condo association has pending litigation that must be resolved.
- There is a heavy concentration of units (over 50%) that are not “owner-occupied” units. This usually means that those units are rented out by owners who own the unit as an investment property.
- The condo association has a high concentration of commercial space.
- The condo association contains units that are less than 400 square feet.
- The condo association has not be approved by the government agencies FHA or VA.
Most mortgage lenders require a “condo questionnaire” to be completed by the condo management company in order to determine if the association qualifies for mortgage financing. There are anywhere from 20-30 questions that could make a condo “non-warrantable” (not-eligible) for traditional mortgage financing.
When thinking of making an offer on a condo unit be sure to have you Realtor do research on the condo association. Most associations will let you know the amount of reserves in their budget, the percentage of owner occupied units and commercial space, as well as if they are FHA/VA approved. In addition, ask your mortgage lender to provide you with their condo questionnaire so the condo association can be approved in advance of you signing a purchase and sales contract.
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