Many people often do not understand the impacts of Associations. So here I will briefly summarize a few different types and how the will impact your purchasing power or debt to income ratios.
First let’s address the “Community Associations”. These types of associations are not “Homeowners Associations” (HOA).
“Community association” means a residential homeowners’ association in which membership is a condition of ownership of a unit in a planned unit development, or of a lot for a home or a mobile home, or of a townhouse, villa, condominium, cooperative, or other residential unit which is part of a residential development scheme and which is authorized to impose a fee which may become a lien on the parcel. Many people who live in communities who have social groups or associations they name “community association” yet they do not have any power over property owner and are voluntary associations. I need to address these types of associations because they can often add frustration to a mortgage loan file with underwriting. It is important that when the appraisal is completed that the appraisal properly writes that the home is not subject to an association
They do not have any power over property owner and are voluntary associations. I need to address these types of associations because they can often add frustration to a mortgage loan file with underwriting. It is important that when the appraisal is completed that the appraisal properly writes that the home is not subject to an association. He may comment that a community or neighbor association exist on a voluntary basis and does not have any power or rights to the property. If the Appraiser does not do this the underwriter, through their research of the property and neighbor may set a condition on the borrower or loan originator to prove and provide documentation that the association has no power or impact to the property. Otherwise the underwriter will count the association dues to the borrower’s debt to income ratio and may add additional conditions to the file for final approval.
Second is the “Homeowner’s Association” or HOA. A standard HOA has a direct power of enforcement or encumbrance to the subject property and is written within the deed. I know of no HOA that does not have a fee whether monthly, quarterly, or annual. Some HOA’s have two fees. These fees must be factored in the borrower’s debt to income ratios. Whether or not the mortgage loan applied for is a purchase or refinance all HOA fees must be counted and factored in. For instance, if a borrower is purchasing a home in an HOA that fee must be counted within their front-end debt to income ratio. If the borrower owns other properties, whether vacant land or homes, and those other properties are in HOA’s, they also need to be counted in but within the back-end debt to income ratio. Part of the underwriting conditions generally require the borrower to provide recent invoices prove the amount of the fee and that the HOA’s are current and paid to date.
Third is the “Condo Associations”. These can be very frustrating for most buyers of real estate who are applying for a mortgage loan as part of their purchase. There are many different complexities to each different condo association. Mortgage loan underwriting for a Condo will vary depending on the loan to value and how the condo association is classified as “Warrantable or Non-Warrantable”. To add to this a Condo may also be within an HOA, so a borrower will have both a HOA fee and Condo fee added to their debt to income ratio. These combined fees will greatly reduce a borrower’s purchasing power. This may also add another 4 to 8 days of underwriting time. Your Realtor should also help gather as many documents from the associations as possible in the beginning stages of the purchase process in order to help prevent delays in closing.
All associations will have some type of impact on your underwriting and loan processing time frame. Any fee will also lessen your purchasing power by impacting your debt to income ratios. Remember to make sure you understand your pre-qualification letter and if the pre-approved loan amount includes association fees.
Ask questions, get all your facts before you enter into a real estate sales and purchase contract. This is your time and money as well as everyone else involved within your transaction. Do not bow to higher pressed sellers or Realtors. Set your goals, get your facts and align your finances ahead of time and we will see you at a happy closing table.