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Applying for a Condo Mortgage? Don’t Forget the HOA Charges

By Steve Matthews

Tuesday, July 2nd, 2019

Monthly charges, whether condominium or homeowners association (HOA) fees, can make a big impact on a buyer’s ability to qualify for a loan.

All HOA charges have the same impact on the debt-to-income ratio.

The monthly housing obligation includes principal, interest, taxes, insurance and HOA fees. Condo fees typically cover amenity charges. Real estate taxes are charged separately.  It all gets added up and calculated as debt in the debt-to-income ratio, which helps determine how much a customer can borrow.

Lenders have two considerations when a customer wants to borrow for a property with HOA fees. The first is whether the borrower will be able to make the monthly payments. The second is, in the event of a default, whether the lender wants to have the property—with its attendant common charges—on its books.

If units are selling quickly at market price then the bank has a good sense that the marketplace values what the building offers.

Nevertheless, some mortgages derail midstream because of unexpectedly high common charges.

Problems most commonly occur when a customer applies with a lender on a new building they’ve never lent on and they don’t have all the info available in the application. The customer might have believed they qualified for the loan because they low-balled how much the common charges would be when they sought a mortgage prequalification. Once the lender sees the real figures, occasionally the debt-to-income is too high and the lender can’t do it.

To avoid unpleasant surprises, here is some advice about HOA fees/condos:

• Ask a neighbor where they got their loan. Lenders often specialize in a building, getting to know its financial, management and ratio of renters-to-owners well. That can make it easier and faster to get an approval and as a broker, Keegan Mortgage can usually work with that lender directly.

• Buyers should always validate the HOA fees with their real estate agent or the condo sales management office. They should do so before going into contract and understand how it factors into their housing ratio (debt-to-income), which ultimately limits their borrowing power.

• Although sometimes common charges cover costs that would ordinarily be billed separately, such as cable or +utilities, all common charges have the same impact on the debt-to-income ratio.