People buy and sell condos all the time. It is not rocket-science. But it is also not as simple as buying a house. Unless you are purchasing with cash, there are additional considerations to check to ensure there won’t be any surprises with financing, such as larger down payment requirements.
At the heart of the matter is the fact that whether you are getting conventional, FHA, or VA financing, most loans are sold on the secondary market shortly after you close. For the majority of buyers this is of little consequence since the terms of the loan remain the same and sometimes even the place where you send your payments stays the same too. Being able to sell your loan on the secondary market is critical to your lender, however, and to do so, your loan must meet certain requirements established by Fannie Mae.
The term used to indicate that a condo meets the requirements to be sold on the secondary market is “warrantable”. These requirements can change so it is best to contact your lender for a current list, but just to give you a feel the current list most likely includes:
*Complex must be at least 51% owner occupied.
*No one entity can own more that 10% of the units.
*Less than 15% of the units can be behind more than 30 days on association fees.
*HOA must carry specific insurance on the complex.
In addition, if you are getting an FHA or VA loan, the condo must be on the FHA or VA-Approved condo list. If the condo you are trying to buy is not on this list but does meet the requirements, your lender along with the condo’s HOA can work to get the complex approved and on the list. This all takes time, of course.
Believe it or not, most of the difficulty lies in ascertaining the answers to these warrantability questions. In a perfect world, we agents can call the HOA and have our answers. But it is not uncommon for HOA management to be unable or unwilling to provide some or all of this information without you first submitting a formal request based on a contract to buy a unit within the complex as well as paying a fee.
Before you throw your hands up and decide condos are too complicated, a good agent (ahem, Solis Realty) can take much of this research off your hands. And in cases where the HOA is less than helpful, we can pursue alternative sources of information such agents and lenders who have recently sold other units in the complex and presumably went through the same questions to do so. Really as long as your agent understands the process, and is resourceful and proactive in finding the answers, you can have a smooth condo buying experience.
We find the best thing for buyers is to be informed about what is involved (which is why we are writing this post) so you can pick a knowledgeable agent, refrain from falling in love with a condo until you know if it meets your lender’s requirements, and be realistic about the timeline involved in processing such loans. Please note, if the complex is non-warrantable, all is not lost either. There are a few select lenders who make these loans provided your down payment is at least 20%.
Questions? Call us at 512-771-9129