Many people are attracted to purchasing a condo in the greater Phoenix area at this time because on the surface they seem to be a “good deal.” In many cases they are. You can definitely get a good price for them in most cases today. There must be a reason why they are priced so much lower than a comparably sized single family residence so what is the catch? The catch is simply that many condo complexes in the Greater Phoenix area are just not financeable at this time. The lack of financing considerably lowers the supply of buyers because not as many people can afford to pay cash for a condo. Therefore, the prices remain much lower too.
So if you are considering purchasing a condo and are in need of financing here is what you need to know. The ability to finance a condo is often referred to as a condo being warrantable. How do we know if a condo is warrantable or not? Sometimes as a buyer it is difficult to find this out up front, but here are my suggestions if you are looking to purchase a condo with financing.
Step 1: First and foremost you need to make sure you can qualify for a loan. You have a few options here to start. You can look at an FHA loan with a minimum of 3.5% down, or a conventional loan most likely with a minimum of 20% down for a condo.
Step 2: Find out if the condo complex will qualify for financing. If it is an FHA loan you can look up the condo complex at the HUD website at: HUD Condo Look Up
A good way to start is to just type in the zip code that you are looking to live in and then select approved status and this will give you a list of condo’s in that zip code that are on the FHA approved list. This list is your options of condo complex’s that will have a good shot at getting FHA financing in place to purchase a condo. A condo questionnaire will also be required and I will explain this more in the next section where I discuss conventional financing. Minimum down payment for FHA is 3.5% of the sales price. Depending on the sales price I would say to allow for $4000 to $5000 for closing cost and pre-paid items.
If it is a conventional loan then we must do a condo questionnaire that is paid for by the buyer to the HOA (Home Owners Association) Management company and completed by the HOA management company. We try to get this completed up front to make sure we can finance the property. In most cases you will need 20% down on a condo to go conventional. Depending on the sales price I would say to allow for $4000 to $5000 for closing cost and pre-paid items.
You are probably asking yourself, but “How can I tell if I can purchase a condo with conventional financing without doing the condo questionnaire?” Ultimately, you cannot tell for sure, but you are encouraged to do your homework prior to spending your money on a condo questionnaire. A condo questionnaire consists of a long list of items that the lender wants to know about the condo complex from the association manager. I would recommend doing the following:
Ask the listing agent or better yet the condo association management company:
- Has there has been any recent condo units in this complex financed with FHA or Conventional financing in the past few months? If so that is a good sign.
- How many of the units in the complex are owned by investors? If it is over 49% investor owned that is generally not a good sign.
- Are there any lawsuits pending against the association?
- If there are a high number of units that are delinquent on paying their HOA dues it is not a good sign. You would also want to know this if you were not getting financing because a lack of your neighbors not paying means you are going to pay more for your monthly association dues in the future or the complex condition and upkeep will suffer and thus further decline the value and livability of your unit.
I have had recent success in getting Condo’s financed. However, you really need to do your homework first before you start looking. You also need to be patient with the process and allow extra time for the condo complex to be approved. The lender will need all of the documentation that they ask for. Remember they are protecting their interest in the property, but they are also protecting your interest as well.
Good luck and happy home hunting!
Cal Carlson is President and Certified Mortgage Consultant at Prostaff Mortgage Corp. in Phoenix, AZ. If you have further questions he can be reached at 602-279-7777 or by email at: firstname.lastname@example.org