Important Condo Questions to Ask

At Primary Residential Mortgage, we’re proud to provide numerous different home loan options to prospective buyers in Branford, Madison, Guilford, West Haven and the surrounding areas. Our mortgages cover a wide range of different buying situations, including one that some folks tend to forget about within the world of mortgages: a condo loan.

If you’re considering a condominium, particularly as a first-time home buyer, there could be several benefits available.. Condos are often more affordable than houses, and generally come with less maintenance than buying a standalone home. At the same time, they also come with several factors that you should strongly consider, several of which relate to financing.

Warrantable Vs Non-Warrantable

The first and most important factor when it comes to getting a mortgage for a condo is whether the condo is “warrantable” or not. This refers to whether the property meets the guidelines set out by Fannie Mae and Freddie Mac, which include:

• Greater than 50 percent of the condo unites are owned, not rented.
• No single person or business entity owns greater than 10 percent of the total units.
• There is no current litigation naming the homeowner’s association of the condo property.
• Commercial space makes up under 25 percent of the total square footage of the building.
• Past due association fees are present for under 15 percent of total units.

If a condominium meets all these guidelines, mortgages for this property can be purchased by Fannie Mae and Freddie Mac. This purchase means the condo is not considered a risky investment and can generally get great financing. A condo that does not meet these guidelines, and is therefore not warrantable, is riskier and may cause more issues finding financing.

Owning Vs Renting

As we noted above, a big factor in condos is what percentage of the residents own their space versus the percentage who rent. In general, you want to look for a higher percentage of owners – not only due to warrantability issues, but also because more owners usually means better maintenance and a collective group of residents with more of a stake in the general well-being of the property.

HOA Fees and Reserve Fund

Condos generally require membership in the unit’s homeowner’s association (HOA), which comes with fees that generally cover basic maintenance. These fees will vary pretty widely between different properties, so do your research in advance and understand exactly what your fees go toward.

In addition, inquire about the HOA reserve fund. All HOA groups set aside some percentage of fees for large projects or expenses on the property, but if your HOA doesn’t take a high enough amount out here, it could lead to condo owners being forced to pay additional funds for a given project. In general, HOAs should be taking between 20 and 40 percent of your fees out for the reserve fund.

HOA Insurance

Another benefit of the HOA is a master insurance policy that will cover many of the general areas of the building, such as property damage and basic home improvements. But each insurance policy will be different in small ways, so make sure you read the fine print and understand what’s included and what isn’t.

For more on asking the right questions before purchasing a condo, or to learn about any of our available mortgages, speak to the staff at Primary Residential Mortgage in Shoreline today.