Can You Qualify for a Mortgage but Have the Condo Get Denied?
Yes. A buyer can be fully qualified for a mortgage while the condominium project itself fails the lender’s requirements.
When you buy a condo, the lender may evaluate two separate things:
You, the borrower
The condominium project
That means excellent credit, strong income, adequate assets and a solid down payment
do not necessarily guarantee that a particular condo can be financed.
I see this surprise buyers and real estate agents all the time.
Watch: You Qualify. The Condo Doesn’t.
[EMBED THE MIKE BELFOR SHOW VIDEO HERE]
In this episode of The Mike Belfor Show, I explain why a condo project can create a financing problem even when the buyer is completely qualified.
Why Does a Mortgage Lender Review the Condo Project?
A condo is different from a detached single-family home.
You aren't only buying the interior of your individual unit. You are also becoming part of
an association responsible for common elements and shared financial obligations.
Depending on the loan and type of project review required, lenders may need to
evaluate items such as:
HOA financials and reserves
Master insurance coverage
Special assessments
Pending or active litigation
Deferred maintenance
Critical repairs
HOA assessment delinquencies
Condo questionnaires and project documents
In other words, your personal finances can be excellent while the project creates the financing issue.
Can HOA Insurance Cause a Condo Loan to Be Denied?
Yes.
One of the biggest areas of condo financing scrutiny is the HOA's master insurance
policy.
The buyer may have an individual HO-6 insurance policy, but that does not necessarily
resolve an issue with the association's master coverage.
The lender may need to determine whether the project's insurance meets the
requirements of the particular mortgage program.
This has become especially important in California, where rising insurance costs and
changes in coverage have created challenges for some condominium associations.
Can a Special Assessment Prevent You From
Getting a Mortgage?
Potentially, but a special assessment does not automatically mean the condo cannot
be financed.
The lender may need to determine:
Why was the assessment issued?
What work is being completed?
Is it related to safety or critical repairs?
Has the work already been completed?
How is the assessment being paid?
Does the project have other unresolved issues?
This is why the details matter.
A special assessment might simply require additional documentation, or it could reveal
a larger project eligibility problem.
What Are Condo Reserves and Why Do They
Matter?
An HOA collects dues to pay the project's ongoing expenses.
But buildings also have long-term expenses.
Roofs eventually need replacement. Elevators need repairs. Plumbing systems age.
Balconies, parking structures and exterior components require maintenance.
A well-managed association generally plans for those future expenses.
When a project does not have sufficient financial resources to handle major repairs,
homeowners can potentially face increased HOA dues or significant special
assessments.
That's why lenders care about the financial health of the association.
What Is a Non-Warrantable Condo?
A non-warrantable condo generally refers to a condominium project that does not
meet certain conventional agency project eligibility requirements.
That does not necessarily mean there is something wrong with the condo, and it
does not automatically mean financing is impossible.
Depending on the circumstances, alternative financing may be available.
I work with conventional financing as well as non-warrantable condo and Non-QM
options, so when a traditional loan doesn't work, we can determine whether another
appropriate financing path exists.
The loan terms, down payment, documentation and pricing may be different.
The important point is this:
A conventional condo financing problem is not always the same thing as an
unfinanceable property.
“But Someone Else Just Got a Mortgage in
This Building.”
I hear this frequently.
Unfortunately, a previous closing does not guarantee that your transaction will qualify.
The previous buyer may have had:
A different lender
A different loan program
A different type of project review
Different documentation
A portfolio or Non-QM loan
Different circumstances at the HOA
The project's financial, insurance or physical condition may also have changed since the previous transaction.
Someone getting a mortgage in a condo project previously does not guarantee that the same project will qualify for your mortgage today.
What Should Buyers Do Before Making an Offer on a Condo?
Don't be afraid of condos.
Just do the homework early.
If you're seriously considering a particular project, tell your loan officer as early as
possible.
If available, it can be helpful to identify issues involving HOA insurance, assessments,
repairs, litigation and project eligibility before you're several days into escrow.
This is also why our team at American Pacific Mortgage has access to a dedicated condo
review desk.
I'd rather investigate a potential condo issue early than discover it after you've spent
money on inspections, appraisal and other transaction costs.
What Should Real Estate Agents Look For?
Agents don't need to become condo underwriters.
But there are several useful questions to ask when representing a condo buyer:
Are there current or upcoming special assessments?
Are there major repairs planned?
Is there pending litigation?
Has the association experienced insurance issues?
Have buyers recently had difficulty obtaining financing in the project?
How quickly can the HOA documents be obtained?
If anything looks unusual, get the lender involved early.
What Happens if Fannie Mae or Freddie Mac
Financing Doesn't Work?
This is where having access to multiple financing channels can make a difference.
Depending on the property and borrower, we may investigate options including
conventional financing, portfolio programs, Non-QM financing or programs specifically
designed for certain non-warrantable condominium projects.
Sometimes there is another solution.
Sometimes there isn't.
My job isn't to force every property into a mortgage program. It's to determine why there's a problem and whether a responsible financing solution exists.
The Bottom Line
When you buy a house, the mortgage process primarily focuses on qualifying you and
evaluating the property.
With a condo, the financial and physical condition of the entire project can become
part of the equation.
So remember:
You can qualify for the mortgage and still have the condo project fail the lender's
requirements.
The best time to discover that isn't Day 8 of escrow.
It's before you write the offer—or as early in the transaction as possible.
If you're considering a condo in California and want us to look at the financing before
you move forward, reach out. We can review your individual qualifications and help
determine what may be required for the project.
About Michael Belfor
Michael Belfor is a Branch Manager and Loan Originator with American Pacific
Mortgage with approximately 24 years of mortgage experience. He has been
recognized as an APM President’s Club and Top 1% producer since 2017.
His team works with conventional, jumbo, FHA, VA, first-time homebuyer, Non-QM, bank statement, DSCR, TIC, non-warrantable condo and other specialty mortgage programs.
Can You Qualify for a Mortgage but Have the Condo Get Denied?
condo mortgage requirements
condo loan denied, non-warrantable condo financing, condo project approval, HOA insurance mortgage requirements, California condo loans
Yes, you can qualify for a mortgage while the condo project does not. Learn how HOA insurance, reserves, assessments, repairs and project eligibility can affect condo financing.
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