A condo questionnaire is a document required by lenders to finance a property designated as a condominium or townhouse that is a part of a homeowner’s association.
The document provides evidence that the condominium project is in compliance with lender’s underwriting requirements. This section provides an overview of the requirements for this document and helps explain how condos affect the lending process.
What You Need to Know
- The questionnaire must be completed by a representative of the condo association that is independent of the borrower seeking financing. This representative can be a member of the condo association or a third-party vendor approved by the association.
- The questionnaire cannot be completed by the borrower.
- There is not a uniform questionnaire used in the industry, but regardless of the exact order or format of the questions, the intention of all lenders is to verify that the condo meets its eligibility requirements.
How Condo Questionnaires Affect the Approval Timeline
- Because condo questionnaires have to be completed by a person or entity independent from the financing process, borrowers and lenders are at the mercy of the time this person or entity takes to complete the form. As a result, the time needed for approval may be negatively affected.
- It is important that the borrower take action to influence the responsible party to complete the form in a timely manner.
The following factors render a condo project INELIGIBLE with lenders that adhere to Fannie Mae or Freddie Mac underwriting guidelines:
- The site contains one of the following: houseboat or floating home, segmented ownership, manufactured home or timeshare units.
- The buyer only has rights to occupy the condo and doesn’t own it. This is also known as “common interest apartments.”
- The property is being used as both a condo and a hotel, or has hotel amenities, such as the ability for the association to do short-term rentals for units in the project. This is also known as a “condotel”
- The property is a cooperative, meaning a corporation holds the title.
- The property is an investment security, which acts as a liquid asset, and has documents on file with the Securities and Exchange Commission (SEC).
- Project facilities are owned by the developer and are subject to be leased by the Homeowners Association (HOA) to another party.
- The project is not 100% complete, including common areas, units and phases.
- The builder is in control of the HOA.
- The number of units sold and closed is less than 90% of the total units.
- The Fidelity Bond insurance is less than 3 months’ worth of HOA dues.
The following factors create uncertainty when seeking financing from lenders that adhere to Agency guidelines:
- The buyer owns multiple condos with a single deed.
- The HOA owns or operates businesses, such as a daycare or spa
- More than 20% of the project development is considered commercial/nonresidential (e.g. businesses such as stores or coffee shops)
- Mechanicals, such as plumbing fixtures and furnaces, along with utilities are shared between units.
- The condo is currently facing litigation.
- 15% or more of the units are delinquent in their HOA dues for at least 30 days.
- A single entity, such as a corporation or an individual investor, owns more than 10% of the units in the development.
- The development restricts the unit owner’s ability to sell by including a right of first refusal (ROFR), which gives a designated person the right to purchase the condo before the offer is made available to others.
- The number of units owned by investors exceeds 49% of the total units.
- Less than 10% of the budget is allocated toward replacement reserves.