There are numbers of considerations that you must make, when buying a condo, that are different from purchasing single family homes. Although the lifestyle that accompanies condo living may better suit your needs, condos and townhomes are often considered riskier investments. Before you make the final decision, get the answers to the 10 questions below to determine if you are getting the best deal for your money.
1. How many units are rented vs. owned?
Some condominiums have a rule about the number of units that can be rented at any one time. If you want to buy the condo as an investment to rent out, you are at risk of having the condominium board vote at any time not to accept new tenants. If that happens, you could be left in a bind to either sell quickly or change your residence in a hurry! If you want to invest in rental property, you will have a lot more control over a single family home.
2. Is there a rental cap for investors in the building and, if so, has it been met?
Residential condos are sold with the assumption that the buyer is going to live there. The large number of foreclosures that occurred during the recession resulted in many owners purchasing for the purpose of renting. As a result, many condo associations have adopted rental caps, primarily to ensure they are eligible to receive FHA certification. If you plan to get an FHA mortgage to purchase your new home, you need to know that the building will meet the qualifications of being a minimum of 50% owner occupied.
3. Does one entity own more than 10 percent of the total units?
If the building has 21 or more units, and a single entity owns more than 10%, it can prevent you from being able to qualify for a home loan.
4. Is there any current litigation? If yes, what’s it for?
Litigation over building defects is something you need to know before you buy. You should also learn what repairs will be required and how extensive they will be. Most importantly, if they are in litigation, programs like FHA and VA will be suspended until the litigation is settled.
5. Is there more than 10% going into the reserves as a line item on the budget? If you already have the budget, please send a copy.
These are costs for emergency repairs to common areas such as leaky roofs or structural issues. FHA is typically the first choice for first-time home buyers, and the rules require a minimum of 10% toward the capital reserve account. Before you apply for FHA pre-approval, find out if the condo is meeting the 10% requirement by FHA, Fannie Mae, and other lenders.
6. How many units are delinquent on their assessments?
If other units in the condo are not paid up, it could affect the title to your unit. Otherwise, you may find out that your title has a lien against it. If there hasn’t already been an assessment, you or your real estate company should request one.
7. Is there a special assessment coming up? If so, what it is for?
You may be held responsible for fees on the assessment and, if not paid, you can have a lien placed on your property and end up in foreclosure.
8. Are you able to send the last few months of meeting minutes?
Your condo is an investment whether you are buying it as a rental property or as a home. You want to make sure the money is being used appropriately. When your mortgage company prepares your offer, have them include the request for meeting minutes and a deadline so you know for certain if they are willing to put them forward.
9. Who is the contact for the association?
The association is responsible for providing you with certain information. You need to have easy access when you have concerns about their obligations being fulfilled or when you are unsure what is required for you to abide by their rules.
10. Who is the contact for the master insurance policy?
The insurance protects you in case of damage to the property or from liability in case someone is injured while on your property. Learn who to contact and find out what coverage you have to protect you.
Before you invest in a condo, make sure that it is the right style of home and the right condo specifically for you. A and N Mortgage can help you determine the best type of loan for your new purchase.