Considering a condo purchase?
With the Honolulu Board of Realtors reporting the median sales price for an Oahu condominium coming in at less than half the median cost of a single-family home in June 2021, condos are a popular choice for many buyers. What should a buyer be aware of?
Let’s start with a couple of buyer considerations. A lower sales price is an attractive feature at first glance. However, buyers need to consider additional monthly payments in the form of Homeowners Association (HOA) and maintenance fees. Your lender will include these monthly payments when calculating the loan amount you may qualify for.
Another factor that impacts affordability and monthly payment is the additional cost associated with your mortgage interest rate. A buyer would typically take a higher interest rate to reduce the discount points paid at closing.
From a lender’s perspective, there are many risk factors that are reviewed on the condo’s documents, particularly the Condo Questionnaire and HOA financial statements. First, it is important to distinguish whether the condo is an attached condo or a detached condo. When any portion of the subject unit is attached, including carports and breezeways, the home falls under an attached condo category.
Second, the type of loan program will determine the method a lender must review and get a condo project approved. Conventional, VA, FHA and jumbo loan programs each have an approval process. Fortunately, VA and FHA have websites to check if a condo project in Hawaii is already approved.
What are common risk factors that come into question? When a project is in or near a resort area, lenders will look for timeshares and hotel-like features. These characteristics could make the project ineligible, and a lender may seek out alternative loan programs that require more down payment. When a buyer wants to buy a leasehold condo unit, the maturity date of the lease term needs to be at least five years beyond the term of the loan for a conventional loan, ten years for an FHA loan and 15 years for a USDA loan. A VA loan requires VA prior approval of the specific legal arrangement or project.
Another risk factor is the presence of litigation involving the project’s HOA. There are many different reasons for this occurrence, so lenders will review each situation for eligibility. An HOA’s financial condition is also important. The HOA budget and reserve studies are analyzed for minimum reserve fund requirements. This is to ensure that the building is maintained and that operating costs can be covered for the long term.
A mortgage lender can assist a buyer in researching potential properties early in the process. To discuss your loan options and get answers to any mortgage-related questions, contact one of our loanDepot Loan Consultants today.
• loanDepot.com, LLC is not acting on behalf of or at the direction of HUD/FHA or the federal government. *Subject to VA Eligibility
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