Getting a Loan for a Condo in Las Vegas
Thinking about buying a condo in Las Vegas? Here are a few things to take into consideration when you’re applying for a loan.
It's not just the Condo you are buying
Keep in mind that you're not just purchasing the unit, but a portion of the common elements as well. As an owner you will be responsible for the monthly costs of your unit and a pro-rated share of the maintenance costs for other parts of the complex.
Reserves
Just like a single family home, a reserve must be kept to address replacement costs as they arise. Likewise, monthly maintenance must be performed to keep the condo community in tip top shape. Just like anything else, the better something is maintained the less expensive it is in the long run. Potential condo purchasers should talk to board members and scrutinize financial statements to assess the fiscal strength of the association. Is there any upcoming special assessments looming on the horizon?
Special Assessments
What are special assessments? Special assessments are typically for unanticipated costs that the reserve cannot adequately cover. Usually each owner's share of a special assessment is calculated using the same formula as the monthly dues. Just like owning a single family home, it is a wise idea to have a little bit of money tucked away for repairs.
Lenders tend to be Wary
If you’re interested in financing a condo here in Las Vegas, the lender has more say than in a single family home purchase. You've got to keep in mind that some of the biggest losses that banks took during the crash were from condos. They view these loans as more risky and therefore are much stricter these days. Some of the things they will examine are the HOA reserves, owner occupant levels and monthly delinquency rates.
I had deal fall apart once because the lender didn't think the home owners association (HOA) had enough money in reserves. The reserves shown on the financial statements did not meet their minimum requirement. Because of this, the underwriter denied the loan and my disappointed buyer walked.
This part can be frustrating for the buyer. In this case my customer was a very responsible young lady (in her early 20's) who had great credit and 20% down. She was excited about her condo, which was at a steal of a price, and was absolutely qualified. The bad news? According to her lender, the HOA was not. This part of the buying process is out of the purchaser’s control obviously.
Ratio of owner occupied units
Lenders can be finicky about this too. If a disproportionate amount of units are filled with renters, the mortgage company may not approve financing. For instance, Fannie Mae states that more than half the condo units must be owner occupied. They also don't want to see one individual or group who owns more than 10% of the units in the complex.
Is everybody paying on time?
Delinquent condo dues are also taken into consideration. Fannie Mae will also deny a loan if more than 15% of the owners are behind on their monthly maintenance dues.
Down payment
While many lenders require a much larger down payment for condos, FHA has more friendly requirements. If the building meets FHA approval, buyers can get a down payment as low as 3.5% of purchase price. Like other lenders, FHA approval is dependent on the financial health of the association, adequate insurance and the proper amount in reserves. They also want to make sure there are no special assessments or pending litigation. I had a condo listing once whose finances were decimated as the result of a lawsuit the year before. Financing was out of the question and we ended up selling the unit to a foreign cash buyer.
Finally
Remember that when you’re getting a loan to buy a condo, having great credit and money in the bank is just part of the equation. The HOA must also be up to snuff.