Condo living is straightforward, but condo buying may not be. If you finance your first condo purchase, the unit per se will not be the subject of lender’s scrutiny but the building complex where it rests. For starters, a building has to be approved by FHA or VA or meet standards by Fannie Mae or Freddie Mac to be eligible for their respective condo loans. You can surely arm yourself with enough knowledge on condo financing and we can help you with that.
Condo Purchase 101
Find a place where you can truly live comfortably. You’d know it when you see it. And it’s okay to give in to your heart’s wishes because you are going to live there anyway.
After the initial “I want this place” euphoria has settled down, start to look over the building as objectively as possible using the following factors.
1. Focus on the resale value.
Buying a condo unit is, just like buying the usual single-family house, is one of the biggest investments you’ll make in your life. Unlike houses, condos take time to see their values appreciate and for you to recoup your investment.
You can only ensure that your condo unit has a strong resale value. How to check on its selling or reselling point? Check the building project’s resale history and see how long its units were on the market before they got sold off. This will give you a clear idea of your unit’s salability.
2. Check how the building is managed.
As a future homeowner, it’s only important to know the affairs of the building, who and how it is managed.
- Association fees. Go over the homeowner’s association dues to see how much is allocated for maintenance, repairs, litigation, and such. Be wary of incredibly low association fees because your building could run low on repair funds and not well-maintained to affect your unit’s resale value. Or that you and the other homeowners may have to foot the bill for major repairs.
- Budget. Always ask for the building budget from the owner of the unit/building. There you can examine the association’s (i) outstanding debt, (ii) percentage of homeowners not paying their dues, and (iii) size of reserves.
- Delinquency rate. FHA, Freddie Mac and Fannie Mae will not approve condo complexes with delinquency rates over 15%. If your building has a high number of homeowners delinquent or defaulting on their dues, it would badly reflect on your property’s value.
- Insurance. Find out if the whole building is insured and to what extent this building insurance covers. If a fire were to occur and damages your personal property, will that be covered? Your building insurance is subject to lender’s evaluation.
- Reserves. The age of the building will determine the size of the reserves. And the lack of reserves for capital expenditures and emergencies is one major stumbling block to FHA or conventional condo loans.
3. Check who lives in the building.
There are two main occupant demographics to look into:
- Percentage of renters. Maintenance can be a concern if the complex has a large number of renters. Renters, according to experts, are less inclined to preserve and maintain the property unlike the owners.
- Percentage of investors. FHA requires at least 50% of the units to be owner-occupied. Fannie and Freddie have a cap of 30% for investor-owned units. Anything beyond that becomes ineligible for financing. If a condo building becomes ineligible for loans, its units can only be sold to cash buyers and often at a discount.
4. Live in a thriving, dynamic location.
Your condo’s site is ideally in a neighborhood with bustling businesses and well-established community ties. This does not only boost your condo’s value but for your peace of mind as well.
Don’t be afraid to ask the help of experts when looking for a condo unit, weighing your options, and getting financing.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.