Home buying · Condominiums
On a condo the lender approves the building as well as the buyer. Since Florida tightened its condominium laws, that review decides more deals than it used to. Here is what is being checked and how to get ahead of it.
Chris Ailes, mortgage broker, Fort Myers · NMLS #2485778 · About 3 minutes to read
Naples, Fort Myers, Bonita Springs and Sarasota are condo markets, and a lot of what I do on a condo purchase happens before the appraisal is even ordered. The building has to pass, and after the reforms that followed the Surfside collapse, passing means more than it did.
Florida’s condominium reforms require structural milestone inspections for many buildings three stories and taller once they reach a certain age, along with structural integrity reserve studies that tell the association how much it should be setting aside for the roof, the structure, the plumbing and other big-ticket items. Associations that used to vote every year to waive reserves have lost much of that ability for those structural items. The result is that a lot of buildings raised their dues, levied special assessments, or both, and a few have found problems that are expensive to fix.
For a buyer this cuts both ways. A building with a completed inspection, funded reserves and a clean report is a safer purchase than it was five years ago. A building that has deferred all of this may hand you a special assessment shortly after you move in. The documents tell you which one you are looking at.
Conventional lenders following Fannie Mae and Freddie Mac rules review the project for deferred maintenance, unfunded repairs, structural safety issues, adequate reserves, sufficient insurance and pending special assessments. They also look at the share of units that are investor-owned, whether one entity owns too many units, how much commercial space the building has, and whether the association is in litigation. Any of those can move a building from eligible to ineligible for a standard loan.
FHA and VA are stricter in a different way: the project has to be on their approved lists, or in some cases qualify for a single unit review. Many Southwest Florida buildings are not on the lists, which is why a buyer set on FHA or VA should check the building before falling for it.
The tool for all of this is the condo questionnaire, a form the association fills out for the lender, plus the budget, the reserve study, the inspection reports, the insurance declarations and the meeting minutes. I ask for them as early as the contract allows.
You do not need to be an accountant. Look at the reserve balance against what the reserve study says it should be. Look at the last two years of minutes for the words “special assessment,” “roof,” “structural” and “litigation.” Look at the insurance declarations for the wind and flood coverage on the building, because if the master policy is thin, you carry the risk. And look at the dues history. A building whose dues doubled in two years is telling you something.
If anything in there worries you, that is the moment to ask questions, negotiate, or walk. After the inspection period closes, your options shrink.
The association’s master policy covers the building and common areas. You carry a walls-in policy, usually called an HO-6, for the interior of your unit, your belongings and your liability, and the lender will require it. In a flood zone the master policy should carry flood coverage for the building, and you may want contents flood coverage of your own. Price both early; they go into the payment.
A pending or recently levied special assessment shows up in the questionnaire, and the lender wants to know whether it is paid, how it is being paid, and what it is for. A large assessment for structural repairs can make a building ineligible until the work is done. A modest one that is being paid monthly is usually workable and simply goes into your payment. The negotiation with the seller over who pays it belongs in the contract, not in a conversation at the closing table.
Before the offer, I check whether the building is FHA or VA approved if that is the loan you want, and I ask your agent what the listing side already knows about assessments and inspections. Once you are under contract, the questionnaire and documents get ordered on day one, and I read them alongside the underwriter. If the building is a problem for one lender, a broker has other lenders with different tolerances, and I know which ones. If the building is a problem for every lender, I tell you early, while you can still walk away with your deposit.
Only if the project is FHA approved or eligible for a single unit review. Many Southwest Florida buildings are not. I check the approval status before you write the offer.
A form the association completes for the lender covering reserves, insurance, assessments, litigation, ownership mix and building condition. It is the core of the lender’s project review, and it is one of the first things I order.
It depends on the size, the purpose and how it is being paid. A structural assessment that is unfunded can make a building ineligible until the work is done. A paid or monthly assessment is usually workable and is counted in your payment.
A broker can place the file with a lender whose guidelines are more flexible on that particular issue. If the building fails everywhere, you will hear it from me early rather than at the end.
Chris Ailes, NMLS #2485778. Florida and Texas loans originated through Anchor Mortgage Funding Inc., NMLS #236419; Ohio through Loan Factory. This article is general information, not a commitment to lend and not advice about your specific situation. All loans subject to credit approval and underwriting on a complete file. Guidelines change. Equal Housing Opportunity.
