Questions to ask when buying a Condo

  1. Have there been any special assessments and will there be any special assessments in the near future?A special assessment is an amount of money needed to pay for a project (like a new roof) or outstanding debt that was not part of the annual budget/assessment. If there is an upcoming assessment then you can expect your HOA dues to increase. The amount may be requested immediately from each unit owner or may be broken into installments depending on how the trustees have decided to handle it.
  2. What are the biggest complaints against the management company?Ask neighbors. Ask for meeting minutes. Speak with the property manager. You want to know if management is diligent and what people are griping about at meetings. Is there any litigation between homeowners or owners and management? This will be more useful than Yelp reviews.
  3. What does an insurance policy cover?Ask for a copy of the insurance policy. It might be a good idea for your insurance agent to review it with you if it’s confusing. You’ll most likely need to add an extra policy to cover items within your unit in case of a robbery or flood.
  4. What are the HOA rules?Does this community allow pets? Can you rent out your unit if you need to? I’ll be honest, HOA docs are pretty boring but absolutely necessary and 100% your responsibility to read before you sign on the dotted line.
  5. How much cash reserves does the community have?Condo association fees are calculated based on how many units there are, what it costs to maintain the property (both short and long-term), whether or not the community is professionally or self-managed, and funds set aside for litigation and major repairs. Get your hands on a breakdown of the monthly dues you’ll be responsible for. Make sure you can truly afford this extra payment, and that you understand what you’re getting for this payment. And remember, condo association fees are not tax-deductible like your mortgage is. You also need to look closely at the Repair Fund. Every condo association must put a certain portion of dues aside for major repairs. If the complex is less than 10 years old, the repair fund should have 10% of the cost to repair major items (i.e. roofs, pools, etc.). If your community is 10-20 years old, the Fund should have 25%-30% or more on hand for major repairs. And if the community is more than 20 years old, 50% needs to be funded. Find out the delinquency rates on monthly dues as well. When other owners fail to pay their monthly dues, this often leaves everyone else holding the bag. Good communities will have a delinquency rate of 15% or less.
  6. Is the condo warrantable?** This is the most important question to ask because if the condo is not warrantable then financing can be very difficult to attain if you are an FHA buyer. To find out if a condo is warrantable go to HUD.GOV. A non-warrantable condo is a condominium property in which the loan is not eligible to be sold to Freddie Mac or Fannie Mae, and as such, mortgage financing for this type of property is considered by most banks to be more “risky.” A non-warrantable condo may require as much as 20% downpayment. It’s important to work with a lender who specializes in these types of condos because they can be very tricky.

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