I know I promised to continue this series with ‘Understanding the Buyer Brokerage’ agreement but I have to pause and address another issue. I have had several people ask me about the rules of buying condos and townhomes and I wanted to make sure I spoke to this issue quickly. Buying a condo or townhouse in Atlanta is very different than purchasing a single family home. The financing rules are different unless you are purchasing with all cash. Most buyers right now are using the government backed FHA loan program because the down payment is 3.5% versus the 10% or greater with conventional financing. Because most buyers are going FHA, they are subject to the governments’ rules regarding condo purchases.
First of all, not all condos will qualifiy for FHA financing. There is a section of the HUD website that you can plug in the condo name, city and state and find out if you can purchase your particular unit with FHA financing. The link is https://entp.hud.gov/idapp/html/condlook.cfm Why does the government care about the condo or townhome unit that you purchase? There are four main reasons:
- Lack of Occupancy – There are quite a few developments in the Metro Atlanta area that were started and not completed. The occupancy rate may be under 50% with a lot of vacant units or sections that have to be finished. In this current housing environment, many builders have gone out of business and the timeframe to complete these developments and get them sold is uncertain. The government is not willing to take the chance on financing in this situation.
- The Financial Position of the Homeowners Association – A strong condo association is what drives any community. The board is responsible for managing the upkeep on the property, ensuring that the residents follow the covenants and maintaining the overall welfare of the community. Any weakness in the financial position of the board can create an instability in the community and again the government weighs this before backing the loans.
- The Rate of Foreclosure in the Community – A high foreclosure rate causes instability in the condo community and again is one of the areas that the government examines prior to approving the condo for FHA financing.
- The Number of Rentals in the Community – A high number of rentals is a red flag for the government because it also signals a lack of stability. Renters come and go but homeowners are committed for the long haul.
Again, if you are considering the purchase of a condo, visit the HUD website and plug in your particulars. Find out before your commit money, time and energy only to find out later that you can not purchase the unit with FHA financing.
In Part IV, I will discuss the Buyer Brokerage Agreement and what it means to you.