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What Is A Condo Questionnaire and Do I Need to Complete One?

Written by:  

Andrew Tavin

Andrew Tavin

Andrew Tavin

Personal Finance Writer

Andrew Tavin a contributing writer for Own Up.

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Fact Checked by:  

Dan Silva

Dan is the Vice President of Marketplace Lending at Own Up. Throughout his career, he has held executive leadership positions in the mortgage and banking industry.

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A corner unit condominium building sitting just off the street

Not every borrower is looking to buy a single-family home. If you live in a city or don’t want the responsibility of a single-family home, you may be considering a condominium, townhouse, or a property that’s part of a larger development or community.

If this sounds like you, your mortgage lender will likely require the submission of a condo questionnaire before the purchase can go through.

What is a Condo Questionnaire?

When you purchase a condo, your lender will require the property’s homeowners association (HOA) to fill out a questionnaire disclosing particulars about the property and the development in which it resides. The questions concern basic information about the development, insurance coverage, rules around reselling, and more.

Since the HOA makes property decisions that can affect a lender’s willingness to finance the sale, the questionnaire responses are typically part of the mortgage approval process.

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What Is a Homeowners Association?

Before diving too deeply into the specifics of condo questionnaires, let's talk about the HOA’s role and how it may impact a homebuyer’s condo purchase.

Most condominiums, townhouses, and other planned unit developments are governed by a homeowners association. According to the Homeowners Protection Bureau, there are over 74 million people living in planned developments in more than 350,000 homeowners' associations nationwide.

Homeowners associations hold elections among residents for leadership positions on its board of directors. The board is responsible for ensuring association residents abide by the rules and regulations that are in place to maintain the community. The board also makes sure the property has a uniform appearance by ruling on everything from what owners can leave on lawns and porches to allowable external improvement to properties, including window replacements and solar panels.

Homeowners are automatic members of the HOA; they must follow HOA rules as well as pay dues. Sometimes they may be called upon to vote on decisions impacting the association property.

The HOA fees, also called assessments, pay for a number of items that impact everyone who lives within the association. This may include upkeep of the external parts of buildings (such as the roof, windows, or overall structure) along with common areas like open green space, stairwells, and common hallways. Sometimes the association will bring in a management company to help with landscaping and building upkeep, building finances, and more. It typically depends on the number of units in the building and whether homeowners want to maintain all of the common areas and bookkeeping responsibilities themselves.

Why does any of this matter? Your HOA oversees many elements that impact a potential homebuyer’s condo’s financing eligibility. Your lender may want to make sure the building and HOA meets certain financial and occupancy requirements before financing a home loan for the property.

What's the Purpose of a Condo Questionnaire?

The condominium questionnaire may seem like yet another annoying document in a huge pile of documents you must submit to purchase a place to live. You'll also have to pay a nonrefundable condo questionnaire fee in addition to all the costs associated with a mortgage approval.

But the questionnaire exists for a reason.

Lenders are by nature risk averse, and condominiums are risky by nature. Because the condo buyer will not be the only person making decisions about the property, the judgment of the homeowners association and status of the entire condominium development must also be taken into consideration.

For instance, one of the questions on the condo questionnaire, also called a condo certification, asks whether the HOA is involved with any pending litigation. A lender can be justifiably wary to provide financing for an individual unit that is attached to that type of scenario.

One relevant example is the case of Lakeside Village Homeowners Association Inc,. v. Belanger. Alfred Belanger and Michael Drennan owned adjoining homes in Lakeside Village, a condominium development in Texas. In 2005, the condo board was notified the structural integrity of a nearby retaining wall was compromised and needed to be fixed.

Despite regular complaints from Belanger and evidence of sufficient reserve funds, the work was not done until 2013, at which time the condos were unlivable due to water damage and black mold. The two men sued the Lakeside Village Homeowners' Association and the property management company. Belanger and Drennan won, but an appeal delayed the final judgment until 2017, when they won again.

In sum, pending litigation can create concerns for the lender, and it can be years for such cases to be resolved. A condo questionnaire promotes transparency.

Who Completes the Condominium Questionnaire?

There is not a uniform condominium project questionnaire across the industry. However, regardless of the exact order or format of the questions, there are likely to be common elements.

Lenders will want to know about construction issues, HOA insurance, the percentage of units that are behind on association dues, and sales rights, as well as basic information like the development name and square footage.

The buyer may not complete the questionnaire form. A representative of the condo association must fill it out, which can add another stressful factor to the closing and mortgage approval process. If the HOA or management company does not fill the form out in a timely manner, the financing for the purchase may be at risk and cause the sale to fall apart.

Why Would a Condo Be Ineligible for Financing?

While certification requirements can vary, certain types of projects will automatically be ineligible for conventional financing from lenders that follow Fannie Mae and Freddie Mac's underwriting guidelines – which many do.

Your potential condo may be ineligible for financing if:

  • The HOA site contains houseboats, boat slips, or timeshare units.
  • There is a restriction on when the buyer can occupy the unit.
  • Some of the HOA units are used for hotel purposes or short-term rentals.
  • A certain percentage of units, 20% or more for projects with 21 or more units, are owned by one person or condo corporation.
  • More than 35% of the total space is used for commercial purposes or other nonresidential purposes.

Why Would a Lender Reject Condo Financing?

Even if a lender is less strict about following Fannie Mae and Freddie Mac guidelines, there are many factors that could still complicate approval or prevent you from receiving it entirely.

You may need to find a different financing solution if the condominium community you're considering has any of the following red flags:

  • The HOA owns or operates businesses, such as a daycare or spa.
  • More than 20% of the project development is used for commercial purposes or other nonresidential purposes.
  • Mechanical systems, such as plumbing fixtures, furnaces, and utilities are shared between units.
  • The condo is currently facing litigation.
  • A total of 15% or more of the units are delinquent in their association 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.
  • More than half of the total units are not owner-occupied or owned by investors who are renting out their units.
  • Less than 10% of the budget is allocated toward reserve accounts for property maintenance.
  • The building or property has structural integrity issues.

Closing the Deal

If red flags do arise during the closing and due diligence process, buyers may need to turn to a different financing solution. Buyers may want to have a backup plan in place, for instance with a credit union or local bank, in case the initial lender rejects the loan. The other option is to walk away from the deal – especially if financing contingencies cannot be met.

The Bottom Line

Buyers should do their research in advance to lower the odds of problems down the line. The FHA has a searchable database of FHA-approved developments that are less likely to face problems with the condo questionnaire.

We know the process can be frustrating, but whether you buy a condo or a different property, it'll feel worth it in the end.

See What You Qualify For

See What You Qualify For


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