Do I have to get a doctor for my Homeowners Association? Well the answer to that is….maybe.
So what exactly do I mean by “Do You Know If Your HOA is Healthy?”
Let’s approach this from the perspective that you own a condo and are going to place it on the market For Sale. You probably never even give it a second thought as to what is currently happening with your homeowner’s association (HOA). Well, there are several things that can be going on, be they immediate, or long term that could dramatically affect the ability of a BUYER for your condo to get a mortgage. Let’s look at a few examples which seem to happen often.
- Rentals Exceed Condo Docs or Lender Allowance — Now this one will vary from lender to lender as to how they address this situation. But, most likely, your condo (or townhome) community has a limit as to the number of rental homes they can have at any given time. This is usually outlined in your Declaration of Condominium under Leasing Guidelines. While most HOA’s manage this very well, it can be a problem. If there are to many rentals in your building, a Buyer may not be able to obtain a mortgage as the lender will consider the community “unstable” with not enough owner occupied homes. Might be a question to ask your HOA Manager before you list your home!
- Delinquent HOA Fees — You may your monthly HOA fees on time…every month. So does everyone else, right? WRONG! And this is another issue that can affect a Buyer getting a mortgage in your building. If the HOA is not tight on collecting HOA fees, and there are to many homes that are delinquent in their payment, the lender may not approve the HOA. Many Midtown Atlanta condo buildings are able to control this by limiting, or even denying access to the limited common elements of the building, for which your HOA fee is used. But if not managed, it can be another obstacle for a Buyer and they may not get a loan to purchase your home. Might be a question to ask your HOA Manager before you list your home!
- Percentage of Retail to Residential Space or Square Footage — If you live in a larger building with many homes, this most likely will not be an issue. In fact, it only came up once for me in a smaller building in Downtown Atlanta. The lender looked at the percentage of the building that was commercial vs. residential, and it took some brow-beating and phone calls to get the HOA and building approved so my Buyer could close on the condo!
- Money In Reserves — The HOA must allocate a certain amount of your monthly HOA fee to go to the Reserve Fund. This money is held “in reserve” for future maintenance and repairs to the common areas of the building…everything from the pool table to the pool furniture needs to have an estimate life, and when it will be replaced. Most HOAs conduct a Reserve Study to make sure they have adequate funds, and are planning for the future. Again, most recently a small building (just 18 homes) had money in reserve, but their current year budget did NOT have ANY money going to reserves. Probably more of an accounting mistake…maybe, but it did require an emergency Board Meeting to produce a new budget and allocate money into the reserves for the lender to approve the HOA.
- Special Assessments or Pending Special Assessments — Again, this can vary based on what the need for the special assessment is. But of concern can be how the assessment is being paid by residents and the amount of it. Some lenders again consider and HOA may be unstable if they are having to pass a large special assessment.
These are just a few of the HOA “land mines” that can be uncovered AFTER your home is Under Contract and the Buyer’s lender is working on the Underwriting portion of their loan. These could be some good questions to ask your HOA manager BEFORE you list your Midtown Atlanta condo For Sale.