Many variables to consider in condo buying

Lauren Bunting

(June 19, 2015) Purchasing a condominium differs from buying a single family home in more ways than the obvious. Of course, condo ownership offers buyers the convenience of maintenance-free living since you don’t have to worry about cutting the grass or shoveling snow — but when looking into purchasing a condo, it’s important to consider more than just price, size and view.

Association’s Stability: Buyers should always receive what’s called a “Resale Packet.” The Maryland Condominium Act protects buyers where a condo association is involved by requiring numerous items to be provided to a buyer prior to settlement including: Declaration, Bylaws, Rules and Regulations as well as a current operating budget among other things.

Buyers also have an unconditional seven-day right of rescission after receiving this packet of information. Buyers should review this packet closely looking at the total amount of outstanding debt owed to the association and the percentage of owners who are not paying their dues, as well as the amount of reserve funds the association has set aside for large repair projects such as roof replacement.

Building’s Insurance: Insurance coverage is another important factor that condo buyers shouldn’t overlook. Condo owners are typically responsible for insuring just a portion of their property on their own, commonly referred to as an H06 policy, and the building carries a master policy; however, rules differ from building to building, and it’s important that buyers ask the right questions to know how much coverage is needed as the condo unit owner — and how much that will cost annually.

Buyers should ask to review a copy of the building’s master insurance policy and have their own insurance agent review the coverage. Also important to note, insufficient master policy coverage can also make units ineligible for financing.

Percentage of Investors vs. Owner Occupants: Just as the borrower must qualify for a loan, so must the condo association qualify for a loan — and the percentage of units owned by investors vs. owner occupants is a crucial factor. Lenders follow guidelines from the Federal Housing Administration, Fannie Mae and Freddie Mac for condo mortgages. Among Fannie Mae’s requirements are that more than half of the condo units must be owner-occupied, no owner may own more than 10 percent of the units and no more than 15 percent of owners can be delinquent on condo dues to name a few of the lending requirements.

 

— Lauren Bunting is a licensed REALTOR®/Associate Broker with Bunting Realty, Inc. in Berlin.

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