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Underfunded Condo Budgets-Can They End Your Buying Dreams?

Loan DeniedIn a post written back in July "Condo Special Assessments-A New Twist in Today's Market"  my warning to buyers who were considering buying a condo in Northern Virginia was to pay careful attention to the association budget.   In our current market and with the changing lending environment it seemed like good advice.  Sure enough one of my buyers just found out what lenders think of underfunded association budgets.

In a condo developments completed in the last three years in Northern Virginia it isn't unusual to find a high investor to owner ratio.  Contracts written in 2003 with high hopes of a flip in 2005 were smashed when the housing market started its downward slide.  As a result flippers found themselves as landlords losing hundreds of dollars a month and with adjustable rate mortgages resetting in 2008 and 2009.   As a result the perfect storm was brewing on the horizon for condo budgets to take a beating. 

The first thing most lenders in Northern Virginia do is look to see if the condo you are buying is on the "approved" list for funding.  If not they will request the completion of a condo questionnaire by the association management to determine whether the building should be approved for your loan.  The first red flag the lender looks for is the investor to owner occupied ratio.  If the number of investor owned units is high they may flat out reject the loan application or for my buyers they took it one step further.


In this case the next step was to ask to see the actual condo association budget to determine if they had the reserves required in order to cover expenditures.   What the examination of the budget uncovered was a significant number of owners behind on their association dues, an underfunded budget for normal maintenance and a budget that would leave a majority of the owners in the hot seat should a major expense occur.   Foreclosures were on the rise in the building, evident by the number of liens on units and as a result the buyers heard the dreaded words.......

APPLICATION  DENIED!

                                   Real People*Real Lives*Real Estate

If you are interested in learning more about the Northern Virginia Real Estate market including Alexandria, Arlington, Fairfax and Prince William Counties give Cindy Jones and Integrity Real Estate Group a call at 703-346-2213.

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Comment balloon 12 commentsCindy Jones • October 19 2008 09:59AM

Comments

We had a loan hold up because the association had illegally disbanneded.  I big mess that took weeks to unravel and almost put the board members in jail.

Posted by Randall Schrader (Competitive Insurance of Dundee) over 9 years ago

What a blessing that this was discovered in advance, rather than after the fact!

Posted by Vickie Nagy over 9 years ago

Cindy, When we are looking at a condo questionnaire we know one red flag is does any one investor own more than 10% of the units, the other issue is the minutes of the last meeting. You could have a current budget that looks fine only to find out that a major special assessment was voted in to start at the beginning on the year or the next quarter. When you have a seller that says I didn't go to the last meeting but I'm looking to sell..get a copy of the minutes. Thanks for the post good info for condo buyers ans sellers alike. Steve

Posted by Steve Loynd, 800-926-5653, White Mountains NH ( Alpine Lakes Real Estate Inc., ) over 9 years ago

Hi Cindy! I'm glad you bring this up. At first I thought "Great! More forms!" But then I saw the need for this one. These trees will not die in vain.

 

Rob

Posted by Rob & Jeannie Steward - Realtors®, We Work TWICE As Hard For You! - Ashton Group (RE/MAX Advantage) over 9 years ago

Randall-wow that is amazing.  I know some smaller associations just fade away over time.  When I was moving my mom to a nursing home I found the original HOA documents for the neighborhood I grew up in.  No one continued to keep it up and over time the neighborhood suffered because of it.

Posted by Cindy Jones, Pentagon, Fort Belvoir & Quantico Real Estate News (Integrity Real Estate Group) over 9 years ago

Vickie-it was a surprise to all of us.  These weren't questionable borrowers or a fly by night lender.  I've just learned from another agent they are having trouble getting loan approval in the same location. 

Posted by Cindy Jones, Pentagon, Fort Belvoir & Quantico Real Estate News (Integrity Real Estate Group) over 9 years ago

Steve-special assessments seem to be the name of the game in our area right now.  I owned a property in one complex  where an investor bought 16 units when the market was hot.  Guess the sales team was happy to see him walk in the door.

Posted by Cindy Jones, Pentagon, Fort Belvoir & Quantico Real Estate News (Integrity Real Estate Group) over 9 years ago

Rob and Jeannie-if you want to kill a tree write an offer on a foreclosure!

Posted by Cindy Jones, Pentagon, Fort Belvoir & Quantico Real Estate News (Integrity Real Estate Group) over 9 years ago

The owner occupant ratio is a Fannie and Freddie thing.  If the ratio of owners is too low it will need to be a portfolio loan in many cases.

Posted by Randy Prothero, Hawaii REALTOR, (808) 384-5645 (eXp Realty) over 9 years ago

Cindy,
And the Buyer should thank the lender for denying their application---saves them lots of money and headaches down the road.

Posted by Cynthia Tilghman, Realtor® Onslow County NC Home Specialist (Kingsbridge Realty, Inc) over 9 years ago

Randy-we are seeing more and more issues with owner occupied ratio in our area.  It is mainly in the newer construction developments where the investors thought there were big bucks to be made.

Posted by Cindy Jones, Pentagon, Fort Belvoir & Quantico Real Estate News (Integrity Real Estate Group) over 9 years ago

Cynthia-in the long run I'm sure they will.  In the meantime it concerned them that somehow the loan rejection would look bad for them.  It had nothing to do with their credit and everything to do with the condo.  The association president isn't happy!

Posted by Cindy Jones, Pentagon, Fort Belvoir & Quantico Real Estate News (Integrity Real Estate Group) over 9 years ago

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