In the Post-Crisis Market, Some Lenders Reject Condo Loans

November 29, 2010, Reviewed September 16, 2013

“I have been preapproved for an FHA loan but the lender says that it is not good if I purchase a property that has an HOA fee. Why is that?” 

It is a roundabout way of telling you that this lender does not make loans on condominiums, since all condominiums have a home owners association (HOA) fee. Many condominium projects have been having trouble collecting these fees from members, especially where significant numbers are in default on their mortgages. This may result in needed maintenance not being made, which can erode the value of all the units in a project. It can also impose an additional financial burden on residents who are not in default, who may be obliged to pick up the HOA fee shortfall.  

On the other hand, many condominiums have no HOA fee shortfalls and are well maintained, making the individual units excellent collateral for a mortgage loan. Your lender does not want to do the homework needed to identify the condos that are good risks. Say goodbye and look to another lender. Giving up the pre-approval means giving up what has no value to you. 

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