Attention Central, PA home buyers! If you are thinking of purchasing real estate (more specifically a condo) in State College, Boalsburg, Bellefonte or any other area with in the Centre region and if you’re planning on getting financing, this is great information about condos that you need to know. This is another great reason why it’s important to have buyer representation. A good Buyer Agent will help you work through any unforeseen details.
Ahhh, the joys of condo financing today. Now ideally, the situation would never get to the point where the client is asking this question. Because if I know upfront that they are condo shopping then there is an entire conversation that must be had to avoid or minimize frustration down the road.
Most of that conversation centers around making sure the client understands that while they are borrowing money to purchase a specific unit, the value of that unit can be largely affected by the condo building as a whole. Which may be a new concept to someone going from a single family residence to a condo for the first time. So with the complex in its entirety coming into consideration, we introduce the Condo Certification required by investors to be able to fund a loan on a condo purchase.
A Condo Certification is a one to two page form we would generate and have the Homeowners Association Management Co. fill out. There are typically about 25 questions/items that we are looking for information on, but here is a quick rundown of the more important items that could very well eliminate your ability to secure financing for that unit:
- Occupancy Rate – this is provided so that we know what percentage of the complex is occupied by the actual owners. Not investors who have their units rented out. Typically we would need to see an occupancy rate of 51% or more, meaning at least 51% of the complex is occupied by the owners.
- HOA Delinquency Rate– this is again is a percentage provided so that we know what percentage of the overall owners are delinquent on their HOA dues. Anything over 15% delinquency will be a huge red flag. And again, it is important to point out why this is needed is because of the concern for the overall well being of the building affecting the value of your unit. If HOA dues are not getting paid, the question would be asked, “How then can they fund the maintenance and care of the building?”
- Litigation– this is a yes or no question to whether or not the HOA is currently in litigation. A yes answer to this would be a deal killer.
Going through a thorough pre-approval and loan application process and then having the conversation upfront about condo financing and the condo certification will almost always make the process go easier. That way, when my client does find a condo they wish to purchase the expectations have been set right and we can get started on the condo cert right away. Thus avoiding wasted days for all parties moving forward on a purchase that will never happen.
It is also important to point out that almost every HOA charges a fee to fill out the condo certification form. It will vary from HOA to HOA. But ideally a little extra money upfront now will save a huge loss and frustration later. At the end of the day, it is really all about communication and setting proper expectations. Once that has been completed, the client knows that despite how strong of a borrower they might be, to reserve a bit of excitement a possible condo until the certification is back and we have the green light!
All the best!