14 Sep What to Consider when Buying a Condo…
There are important things to consider when you buy a condo in today’s market. Buyers should carefully read and review the financial disclosures, operating expenses and financial reserves of any association.
I always suggest to my clients, the reserves held by an association should be equal to about 2-3 years worth of operating budget. If the reserves are less, it might mean you will have to pay special assessments or increased dues when the building needs a new roof, new landscaping, concrete, decks or anything like that. If the reserves are much more it indicates to me the homeowners are paying more in monthly dues than necessary. Click here for more information regarding Why are Townhome Dues High or Low?
Another important question when buying a condo: Is the association approved for FHA mortgages? If it is not, the pool of buyers you can resell the condo to is greatly diminished. Condo associations have to be registered with and have approval from FHA in order for buyers to be able to use an FHA loan. Approximately 35% of all buyers (in Minneapolis area) were FHA loan buyers.
The Minimum Standards which must be met for a Condo to be approved by FHA include Type and Scope of Insurance Coverage for the Association, Number of Units which are Rented vs. Owned, Amount of Delinquent Association Dues and other details.
When zero down loans were readily available and builders were building lots of townhouse/condos, they were not automatically applying for FHA status. Now, when FHA loans are all the rage, many buildings have applied to be FHA approved, so many were applying that FHA suspended approvals sometime last year. Overall the % of Condos Approved by FHA is low, only about 30% from the data I could find.
The basic standards FHA requires to approve a condo complex are also standards savvy buyers should be looking for in all condos they consider purchasing. The FHA.gov website offers a search feature to find Condos which are FHA approved.
One more note, in Minnesota Condos do not always look like you might think. They are not all in big buildings with elevators and long hallways. We usually imagine Condos to be similar to Apartments. There are lots of Condos, especially built in the past 10 years which most of us would call a Townhouse. The difference is a legal description difference not a style one.
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