Orange County, CA – An HOA is established by the developer of a new community. They’re responsible for managing the community and maintaining a set of standards for their homeowners. Each HOA has a defined purpose. They are tasked with maintaining the common areas, collecting dues and enforcing covenants. They can do much more or much less. With condominiums the HOA will insure each unit and the common areas.
These services do not come free of charge. The home owner’s association collects monthly dues to cover these expenses. More services means higher dues. Some condominium offer a variety of full-service amenities. Luxurious pools, gyms, and 24 hour concierge services can be found in many downtown high-rise condominiums. Your lifestyle will guide you to the appropriate condominium. Check out the covenants and use restrictions of the HOA. See what you get…and what you’ll have to give.
When seeking financing for your condominium, your lender will need to identify some specific information about the HOA. They’ll need to determine if the project is indeed a condominium. It may also be a Co-op, PUD, timeshare or condominium hotel. The distinctions are vary important. Is it a common interest apartment or community apartment project? Does the HOA allow for daily rentals? What about segmented ownership? These are important questions to a lender. And they’re standard for the home owner’s association. So don’t get overwhelmed!
Another important piece of data lenders need to collect is the percentage of delinquencies. Job loss, death, divorce and job relocation are common financial hardhships. When that happens, HOA dues might be the first thing to go. Ultimately they might lose their home to foreclosure. If the HOA does not collect these dues then it strains their budget.
The HOA still needs to provide the services required in the covenants, conditions and restrictions. If too many of the units default on their dues then it becomes a big problem. The HOA has two options. Raise dues or reduce services. Fannie Mae recognizes the strain that a large percentage of delinquencies can add. Therefore, if 15% of HOA dues are more than one month delinquent your loan may be denied. With a larger down payment though, this requirement can be sidestepped.
Home owner’s associations should also maintain a reserve fund. This requirement can be avoided with a larger down payment as well. But wouldn’t you feel better to know that your HOA is practicing sound budgeting? With condominium loans that are greater than 80% loan-to-value, the HOA will have to furnish a copy of their budget. In that budget we’ll look for a line item for reserves equaling 10% or more of assessments.
So, that’s the purpose, pro’s and con’s of an HOA. You see that they can impact your condominium home loan. I hope this has helped you become better informed. Happy home hunting!