I read recently that the median single-family home price in Marin County, California is almost $500,000 more than the median condo price.
So, condos are way cheaper, right? Not always, and here’s why.
HOA dues are significantly higher nowadays for a variety of reasons (more liabilities; more maintenance needs for older buildings; more amenities), and this can significantly offset the savings that come from a lower price.
Every $100 in HOA dues offsets as much as $25,000 of mortgage in this interest rate environment. Hence, $500 in monthly HOA dues could be replaced with an additional $100,000 of mortgage debt.
Additional closing costs can include fees for condo documents, fees to transfer the HOA into the new buyer’s name, and two months of upfront HOA fees.
Some of these are sometimes waived or covered by sellers, but we occasionally see buyers having to come to close with as much as an additional $1,500 or more.
Condo financing has slightly higher interest rates too (1/8% or more depending on credit score) when buyers put down less than 25%.
NOT ALL CONDOS ELIGIBLE FOR FINANCING/THINGS TO CONSIDER
Below are some additional considerations taken directly from this 2018 blog of ours.
- Concentration Rule. No single entity can own over 20% of the units in the complex.
- Commercial Use. No more than 35% of the square footage of the entire complex can be “commercial.” The previous limit was 25%.
- Investment Properties Subject to “Limited Review.” This is new too, as investment condos formerly required “Full Reviews.”
- Limited Review means only the condo’s insurance policy is required, and no questions regarding HOA delinquencies, budgets, etc.
- Owner Occupancy Ratios. Owner Occupancy is irrelevant if a buyer intends to occupy the unit. It must be over 50%, however, if the buyer is an investor.
- HOA Delinquencies. No more than 15% of the units can be more than 60 days delinquent with HOA dues. This is a non-issue now, but it surfaces constantly after “corrections.”
- Litigation. Litigation involving the HOA is usually a deal-killer, but not always if it is minor or doesn’t affect the subject unit. We need to review it. We can also use a non-Fannie or non-QM lender, but the rate will be higher and so will the down payment requirement.
- FHA Approval. Entire condo complexes need to be FHA approved before FHA financing can be used to finance a unit, unless a unit is eligible for a “Spot Approval.” You can check to see if a condo complex is FHA approved here.
- 3% Down. This is a reminder that we offer 3% down financing for condos all the way up to $765,600 in “high cost” areas. This is a great alternative to FHA financing but guidelines are much stricter.
- Is it a Condo? I am adding this b/c you can’t tell simply by looking at a unit. You need to check the zoning. If the unit does not touch the ground it is very likely a condo. But if it does touch the ground, it could either be PUD/townhome or a condo. PUD/townhomes are subject to none of the condo restrictions.
- HOA Dues. Lenders need to know exactly what they are b/c they are much higher nowadays than in the past and they significantly affect qualifications.
- Two to Four Unit Complexes No Longer Require Project Reviews. This too is new, and it just means that is it much easier to get financing for small complexes now.
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167