Condo Financing: 12 Questions to Ask Before Listing Your Condo for Sale

Choosing to sell your condo requires attention to detail, especially when it comes to condo financing. To ensure a successful transaction, it’s crucial that both you and potential buyers understand the condo’s financial status and structure. Before listing your property, pose these 12 critical questions to your Realtor, each one crafted to streamline the selling process and making sure potential homebuyers can get financing for the sale.

1. Is the Condo Warrantable for Conventional Lending?

Make sure your condo meets Fannie and Freddie guidelines, demonstrating that it is a low-risk investment. This will ease the financing process for potential buyers and may attract a larger pool of interested parties.

• No outstanding litigation or lawsuits.
• Sufficient reserves, with a minimum of 10% of the budget allocated.
• Less than 15% of units are delinquent on HOA dues.
• At least 50% of units are owner-occupied.
• No blanket mortgages are in place.

2. Is the Condo Warrantable for FHA Lending?

FHA (Federal Housing Administration) loans offer benefits such as lower down payments. Check that your condo qualifies for these loans to make it more attractive to potential buyers, particularly first-time homeowners.

• A minimum of 50% of units must be owner-occupied.
• No more than 15% of units should be delinquent in HOA dues.
• Sufficient reserves are required.
• Commercial space must not exceed 50% of the total.
• There should be no significant pending litigation.

3. Is the Condo Warrantable for VA Lending?

Similar to FHA loans, VA (Veterans Affairs) loans offer appealing benefits, like no down payment. Ensure your condo meets VA requirements to interest veterans and active-duty service members.

• A minimum of 50% of units must be owner-occupied.
• No more than 15% of units should be delinquent on HOA dues.
• Sufficient reserves are required.
• Compliance with VA requirements is essential, including insurance coverage and maintenance plans.
• There should be no significant pending litigation.

4. Does the HOA Have Sufficient Insurance Coverage for the Building?

Adequate insurance coverage reduces financial risk and is required for both conventional and government condo financing. Ensuring your HOA’s insurance is sufficient can make your property more appealing to buyers.

• Hazard insurance that covers 100% of the insurable replacement cost.
• Liability insurance with a minimum coverage of $1 million per occurrence.
• Fidelity insurance for projects with more than 20 units, covering the maximum funds held by the HOA or management company.
• Flood insurance if the property is situated in a Special Flood Hazard Area (SFHA).

5. Are There Any Pending Lawsuits Against the Association?

Significant or unresolved lawsuits can prevent loan approval and deter potential buyers. Clarify any legal matters to avoid financial instability.

• There are no notable legal issues pending, particularly concerning structural defects or financial instability.

6. Are Less Than 15% of the Units Delinquent on HOA Dues?

High delinquency rates signal financial instability, and properties with consistent dues payments are more attractive. Ensure delinquency rates are below 15% to increase buyer interest.

• No more than 15% of units should have HOA dues that are over 60 days delinquent.

7. Does the Association Have Adequate Reserve Funds?

At least 10% of a condo association’s budget should be allocated to replacement reserve funds, demonstrating financial stability and the ability to cover future repair costs.

• The association is required to designate a minimum of 10% of its budget for replacement reserve funds.

8. Is More Than 50% of the Property Owner-Occupied?

Properties with a high percentage of owner-occupied units indicate stability and lower investment risk, making them more appealing for condo financing.

• A minimum of 50% of the units must be owner-occupied.

9. Does the Condo Association Allow Short-Term Rentals?

While this policy may affect potential income and use of the property, it’s good to disclose short-term rental policies upfront to attract the right buyers.

• Clearly outline short-term rental policies and any associated restrictions.

10. Are There Any Special Assessments Planned or in Place?

Financial burdens related to major repairs or improvements can deter buyers. Provide clear information regarding any planned or current special assessments.

• Disclosure of any proposed or ongoing special assessments for significant repairs or enhancements.

11. Are There Any “Critical Repairs” or Deferred Maintenance in the Building?

Significant deferred maintenance can lead to loan denial, reduced property value, and future special assessments. Confirm that all necessary repairs have been addressed.

• Disclosure of any substantial deferred maintenance issues and the strategies in place to address them.

12. Are There Any Restrictions on Renovations or Modifications to the Units?

Potential buyers may have renovation plans. Disclose any restrictions to ensure they are fully aware of what they can and cannot alter.

• Disclosure of any limitations regarding renovations or modifications.

Preparation is key for a smooth condo transaction. It’s essential to thoroughly understand the market trends and the specific requirements for selling a condominium. By asking the right questions, such as understanding the buyer’s financing options and ensuring your property aligns with condo financing criteria, you significantly increase the likelihood of successfully selling your condo. This might include verifying the condo association’s rules, the property’s amenities, and maintenance fees, as well as ensuring there are no outstanding special assessments. Taking these steps will not only streamline the selling process but also make your condo more appealing to potential buyers. Happy selling!