By Alan Bachman
Buying and financing a NYC condo is almost like buying a house. It is also very different. A responsible buyer must ask a lot of questions about any property before plunking down hundreds of thousands of dollars. Is this the right neighborhood? Is the property sound? Do all of the systems work? Is it priced correctly? Can I afford the mortgage payments and the upkeep and maintenance of the house?
Your mortgage lender will also want to know the answers to most of these questions too.
It’s important to understand that buying a condo adds another layer of due diligence. When you purchase a condo in New York you gain partners: both the condominium development itself and the people who manage it. A smart buyer and his condo mortgage lender need information on these partners as well. Is the building in good shape? Are the common areas suitably maintained? Is the building well managed by professionals who enforce the rules and are available when needed? This information is critical to a wise investment decision, especially since your condo financing depends on it.
Of particular concern is the financial condition of the homeowners association (HOA), a board elected from among condo unit owners. Is the HOA spending the money necessary to maintain the building? Are they spending it wisely? Most important, are they planning for the future? Roofs and heating systems do not last forever and neither does the furniture in the common areas or equipment in the exercise room. A well run HOA will maintain cash reserves sufficient for both routine replacements and extraordinary events and if they don’t, you will eventually be hit with a potentially huge special assessment or faced with a condo declining in market value.
Make sure to review or have your accountant review the HOA’s financial statements. Most condo buyers inspect the current year’s budget but fail to ask for the balance sheet, the source of information about the HOA’s reserve account for emergency repairs or capital improvements. It is also a good idea to review the HOA meeting minutes for several previous months to see if any rules changes or major expenditures are under consideration.
Getting a mortgage through Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA,) or the VA carries a lot of requirements specific to condo financing. For example, 50 percent of the units must be owner occupied; most owners must be current on their condo fees; and there is a limit on the percentage of the development devoted to commercial space. The rules also cover the credentials of the property manager, information on pending litigation, and the concentration of FHA loans in the development. There are also special requirements pertaining to new condo developments and buildings being converted to condominium use.
This probably seems overwhelming, but relax; much of the detail work is already done. FHA has a list of hundreds of New York condo developments already approved for FHA condo mortgages and Freddie Mac, Fannie Mae, and the VA also use that list. Before you even start your condo search you can check out interesting new condo developments on StreetEasy or here.
Because conditions (i.e. percent of rentals or delinquent dues) can change, so can the list of requirements. Your condo mortgage lender will handle the required re-verification of the condo’s status before writing your mortgage. As soon as you decide on a unit, get together with your lender and start the process.