To Condo or not to Condo?
Ugh. Condo’s. I don’t want to be a big downer on condo’s but… here it comes. Specifically to Arizona, condo’s are increasingly more and more difficult to lend on. There are several reasons for this but primarily the lenders make a distinction between whether the condominium project is warrantable or non-warrantable. Simply put, lendable or not?
Conventionally the project needs to meet a miriad of restrictions: (this is the short list.. there are more)
* 70% of the units need to be owned and occupied as primary residences.
* The HOA cannot be in any litigation with the homeowners.
* One owner cannot own more than 10% of the units.
* The HOA cannot have more than 15% delinquency.
* The HOA has to be turned over to the owners.
* In a new construction project, 90% of the units have to be delivered.
* The HOA has to carry a minimum of a $1million dollar liability home owners insurance policy and carry an employee dishonesty rider (Many other insurance requirements but this tends to be a big one)
For FHA, the project needs to have received its NEW FHA approval (all FHA approved condo projects needed to get reapproved in 2010)
Given the above restrictions, you can see why I would be a big downer on condos. With the amount of default we have seen in the state of Arizona, most projects have a higher than 30% investor occupancy. Many investors have gone in and bought several units and made the projects ineligible OR the current owner is in default/ delinquent on HOA dues.
I understand the draw to the condo projects as there are many that are priced too low to pass up. Ask the right questions initially in order to determine if it is eligible for lending. On a conventional loan, the HOA MUST complete a “Condo Questionaire”. Most HOA’s do not hand complete them any longer. They are typically done through HOA Questionaire Services for a fee.
My last question? How difficult will it be to re-sell given the difficulty today?
Having a dream is good, owning one is better!
Leslie Pelletiere, Owner
First Class Financial Services, proudly mortgage lending since 1999!
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