Buying a condominium unit can be more involved than buying a single family home. T
his is because you have to worry about both the unit itself and the condominium project as a whole.
10 Questions You Must Ask Before Purchasing A Condominium Unit
To borrow from a famous phrase, not all condominiums are created equally. Some condominiums are very well run; some are quite poorly run and underfunded. Buyers interested in purchasing a condominium unit must do their homework: not only about the condition of the individual unit they are interested in purchasing, but on the financial health and governance of the condominium as a whole. Remember, you are buying into the entire project as much as you are the unit, and your decision will impact your daily living and your ability to re-sell.
Here are the 10 questions buyers should ask when deciding to purchase a condominium unit:
- What is the monthly condominium fee and what does it pay for? The monthly condominium fee can range quite dramatically from condominium to condominium. The fee is a by-product of the number of units, the annual expenses to maintain the common area, whether the condo is professionally managed or self-managed, the age and condition of the project, and other variables such as litigation. For budgeting and financing you need to know the monthly fee and exactly what you are getting for it.
- What are the condominium rules & regulations? Condominium rules can prohibit pets, your ability to rent out the unit, and perform renovations. Make sure you carefully review the rules and regulations before buying. Needless to say, the buyer's attorney should review and approval all condominium documents, including the master deed, declaration of trust/by-laws, covenants, unit deed and floor plans to ensure compliance with state condominium laws as well as Fannie Mae and FHA guidelines, as necessary.
- How much money is in the capital reserve account and how much is funded annually? The capital reserve fund is like an insurance policy for the inevitable capital repairs every building requires. As a general rule, the fund should contain at least 10% of the annual revenue budget, and in the case of older projects, even more. If the capital reserve account is poorly funded, there is a higher risk of a special assessment. Get a copy of the last 2 years budget, the current reserve account funding level and any capital reserve study.
- Are there any contemplated or pending special assessments? Special assessments are one time fees for capital improvements payable by every unit owner. Some special assessments can run in the thousands, others like the Boston Harbor Towers $75 Million renovation project, in the millions. You need to be aware if you are buying a special assessment along with your unit. It's a good idea to ask for the last 2 years of condominium meeting minutes to check what's been going on with the condomininium.
- Is there a professional management company or is the association self-managed? A professional management company, while an added cost, can add great value to a condominium with well run governance and management of common areas.
- Is the condominium involved in any pending legal actions? Legal disputes between owners, with developers or with the association can signal trouble and a poorly run organization. Legal action equals attorneys’ fees which are payable out of the condominium budget and could result in a special assessment. In most states, you can run a search of the condominium association in the court database to check if they've been involved in recent lawsuits.
- How many units are owner occupied? A large percentage of renters can create unwanted noise and neighbor issues. It can also raise re-sale and financing issues with the new Fannie Mae and FHA condominium regulations which limit owner-occupancy rates. If your buyer is using conventional financing, check if it is a Fannie Mae approved condo. If FHA financing, check if it's an FHA approved condo. (Thanks Lou Corcoran for the links)
- What is the condominium fee delinquency rate? Again, a signal of financial trouble, and Fannie Mae and FHA want to see the rate at 15% or less.
- Do unit owners have exclusive easements or right to use certain common areas such as porches, decks, storage spaces and parking spaces? Condominiums differ as to how they structure the “ownership” of certain amenities such as roof decks, porches, storage spaces and parking spaces. Sometimes, they are truly “deeded” with the unit, so the unit owner has sole responsibility for maintenance and repairs. Sometimes, they are common areas in which the unit owner has the exclusive right to use, but the maintenance and repair is left with the association. Review the Master Deed and Unit Deed on this one.
- What Does The Master Insurance Policy Cover? The condominium should have up to $1M or more in coverage under their master condominium policy. For buyer's own protection, they should always buy an individual HO-6 policy covering the interior and contents of the unit, because the master policy and condo by-laws may not cover all damage to their personal possessions and interior damage in case of a roof leak, water pipe burst or other problem arising from a common area element. Ask for a copy of the master insurance policy and don't forget to check the fine print of the by-laws. Sometimes, there's language that would hurt a unit owner in case of a common area casualty. Condominiums over 20 units should also have fidelity insurance to protect against embezzlement.
Often a standard condominium questionnaire will answer all or most of these questions. In Mass., where I practice, this isn't required by law, nor is a seller disclosure. If not, be prepared to generate this list and incorporate it into your Offer to Purchase or Purchase and Sale Agreement, as the case may be in your home state.
Either way, do not have your buyer put earnest money down until satisfactory answers are received. Good luck and happy condo hunting to you and your buyers!
10 Questions You and Your Buyers Must Ask Before Purchasing A Condominium Unit
0 comments • Kim Bregman • March 28 2010 03:25PMChallenge for Borrowers
Challenge for Borrowers
Tighter lending standards imposed by banks are thwarting even low-risk home loans.
By Anne Kates Smith
From Kiplinger's Personal Finance magazine, April 2010
Mortgage rates are bumping along at near-historic lows, and home prices range from bargain levels to outright steals. Uncle Sam has been tossing money at almost anyone who buys a house before the end of April.
So why is the mortgage market so frustrating for so many would-be borrowers? Because nearly three years into the credit crisis, and despite Herculean government efforts to get the housing market rolling, it can still be maddeningly difficult to land a loan -- even for folks normally thought of as low-risk, slam-dunk borrowers. "Well-qualified borrowers are unable to get a loan because lenders are really nitpicking -- I mean really nitpicking -- everything," says Kevin Iverson, a mortgage broker who owns Reed Mortgage, in Denver.
A January survey of senior loan officers by the Federal Reserve Board showed that 13.2% of respondents had toughened mortgage-loan terms in the previous quarter. Of course, lenders have a right -- and an obligation -- to be pickier. After all, loose lending standards contributed mightily to the housing market's collapse. And high-end, supposedly low-risk borrowers are struggling as much as anyone. American CoreLogic, a research firm, reports that nearly 13% of home-owners with jumbo prime mortgages -- loans of more than $417,000 taken out by creditworthy borrowers -- were 90 days or more behind on payments as of November. That's double the percentage in November '08.
But brokers say the pendulum has swung out of the range of common sense. Steve Sugarman, a retired publisher and a real estate investor in Agoura Hills, Cal., is trying to refinance a $400,000 loan on an oceanfront Malibu townhome worth $1.2 million. Sugarman's financial planner, Dennis DeYoung, says his client's income is solid, his credit pristine and his assets substantial. Yet Sugarman, who estimates he has taken out or refinanced at least ten loans since the mid 1970s, has spent nearly four months trying to close on the Malibu place. He's on his second lender and must meet 23 remaining conditions before the loan can go through. "I don't see how the housing market can move forward when someone like me is held up," says Sugarman. The self-employed and those with complicated finances or variable income face particularly close scrutiny. They may be asked for down payments of 40% or 50%, says Iverson.
It's not just stingier lending standards hanging up borrowers. The mortgage market is laboring under recent controversial changes in appraisal guidelines as well as new fee-disclosure rules, which some borrowers find confusing.
The mortgage market will soon face a new challenge. The Fed has been buying mortgage-backed securities since November 2008 to keep interest rates low and money flowing into the mortgage market. When the Fed exits that business in April, borrowers could see mortgage rates rise by a half point, says Keith Gumbinger, of mortgage-research firm HSH Associates.
But he also sees good news ahead. That 13.2% increase in lenders reporting tighter lending standards was the smallest quarterly increase since the third quarter of 2007 -- a sign that the home-loan pendulum may soon swing back to rational.
1 comment • Kim Bregman • March 17 2010 06:02AM10 Best Places for Second Homes - Barrons
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