If you have determined that a condominium would be the best type of house for you to buy, it's important for you to know that you may encounter a challenge in the buying process that is completely out of your control. This challenge involves the owner-occupancy rate within the community of condos you are looking at, and this challenge could prevent you from getting approved for the loan you need to make the purchase. Here are three things you should understand about the loan process and the effects of owner-occupancy rates with condos.
What Is Owner-Occupancy Rate?
Owner-occupancy rate is a ratio that compares the total number of condos in a community to the total number of condos that are currently owned and occupied by homeowners. Condos are typically part of a community that has a homeowner's association (HOA). The owners of the condos must pay a monthly fee to the HOA, and this money is used to pay for repairs and maintenance on the units.
Keep in mind, when you purchase a condo, you truly only own the inside of the home. The outside of it is actually owned by the HOA, and this is why money is needed for repairs and maintenance. This is also why you might be able to find condo homes for cheaper prices than single-family homes.
The owner-occupancy rate is an important factor to consider when purchasing a condo, and this factor is not only important for the lender, but it is also something that could affect you if the deal goes through and you move in.
Why Is This Ratio Important?
There are several reasons this particular ratio is so important. The first reason is that lenders often look into this when people want to finance condos. A lender will typically want to see a ratio that is at least 50%, but some lenders may want a rate higher than this. When this rate is high, it means that the majority of the units are occupied, and this means that the HOA is collecting a majority of the HOA fees each month.
When an HOA can collect most of these monthly fees, it will be able to provide a sufficient amount of repairs and maintenance to the community. This means the homes will be taken care of well, and banks view this favorably. Consider the opposite though. When there are a lot of vacant homes, the owner-occupancy rate would drop. In this situation, the HOA would not be collecting a lot of money each month, and the result of this could be a lack of maintenance to the units. Banks tend to worry about this, and this is why you may have a harder time getting a loan if the rate is lower than 50%.
The second thing to realize is that this rate is also important for you to know. If you are buying a condo in a community with a low rate of occupancy, there is a chance the HOA might be in trouble. In other words, the HOA might be operating with very little money, and this could affect the future of your home.
You might find that the HOA is not completing regular monthly maintenance in the community, or the HOA might begin asking homeowners to pay additional fees each month to help cover the loss of funds in their account.
What Should You Do When Purchasing A Condo?
The best thing you can do if you are in the market for a condo is thoroughly examine the HOA, its guidelines, and its budget. The HOA will provide you with this information if you ask for it, and you should make sure that you choose a condo that has a high rate of occupancy and that budgets its money well. Getting a loan will be easier if you select a condo with an HOA that is in good financial shape.
Buying a condo can be a great investment, but you might also encounter a problem like this. If you are ready to make a purchase, the best thing to do is contact a lender to find out more information about loan programs available for condos or visit a site like http://www.firstmortgagecompany.net.
