One of the most popular blog topics on our website is when we write about bargains, or how to save money in the local real estate market. So, today I searched the MLS and, sure enough, I found some somewhat low-priced condos for sale.
I looked first at how long they’ve been on the market and all of them have been sitting for quite some time. In fact, the lowest-priced condo has been on the market for almost a year.
Now why, I thought to myself, is that?
So, I sleuthed
I then looked at the photos of each condo for sale to see if there was anything there that might explain why these low-cost condos aren’t flying off the market. Aside from one with a very dated kitchen and another with a missing refrigerator I didn’t see any obvious flaws.
Then, I saw it – $270 a month in HOA fees. Now, that may not seem like a lot to some, but for someone on a tight budget who needs a starter home and a price tag that fits their budget, the HOA fees could be a deal breaker.
FHA certification is important
But, there’s another reason these condos may not be selling. When the price of single-family homes skyrocket, buyers on tight budgets often turn to condos as an alternative. Many use loans backed by FHA.
The problem here is that FHA has stringent qualifications when it comes to condos. The community must be FHA-certified for anyone to get FHA’s backing for a loan and many across the country aren’t.
In fact, “… there are more than 150,000 condominium projects in the country, but only 6.5% of them qualify for FHA financing,” according to Kim Porter, citing FHA statistics, at Credible.com.
Back to our condo with a $270-a-month fee. It just so happens that this particular community is not FHA-certified so between the high monthly HOA fees and the fact that it’s not approved for an FHA loan, the poor homeowner is having a rough time selling.
Pay attention to what your HOA is planning and doing
You may not be thinking of selling right now, but eventually you most likely will.
Most homeowners that live in managed communities (those with a homeowner association) receive a monthly or quarterly newsletter or bulletin from the HOA. Many don’t bother to read it.
If you own a condo or are planning on buying one, it’s important to be active in your Homeowners Association. Even if all you do is read the newsletter or attend the meetings, it pays to know what is going on.
For instance, if the ratio of rentals to owner-occupied units happens to increase to more than half of all units, your community will lose its FHA approval. Other FHA approval violations include:
- Commercial use of the property is limited to 35%.
- The association has to keep at least 10% of the budget in cash reserve, according to Porter.
- The association must not allow fewer than 85% of the homeowners to become delinquent on their HOA dues.
Since FHA demands that recertification takes place every three years, it’s important that you ensure they’re following the rules.
The biggest problem that occurs is the first one I mentioned – too many tenants. The wise homeowner will be vigilant in monitoring the enforcement of FHA’s cap.
Yes, that’s easier said than done. But it’s important to pay attention to the future resale value of your property and the longer a home remains on the market, the less you’ll make on it. If you can’t sell it at all, it’s worthless, right?
If you want to check if a particular condo community is FHA certified, check HUD’s website.