Love Buying A Home Series: Week 10

The “Love Buying Your Home” series will take you step-by-step through the entire home-buying process — from finding a buyer’s agent to settlement day, and even to maintaining your home after you’re all moved in. Every first-time buyer will find this information-packed series easy to follow and understand. Make sure to tune in for the next few weeks!

If you are buying a condo, townhome, or a single-family home located in a homeowners association, you’ll have the opportunity to review the associate documents.  This step happens AFTER you are under contract. Seems backward, but that’s how the process works. You’ll only have a few days to read sometimes hundreds of pages of documents about the rules, regulations, and financial situation of the association.

HOA Doc’s 101

Condo docs include, but are not limited to:

• Rules and regulations
• Budget
• Financial Statements
• Minutes from meetings
• Declaration

Rules and Regulations

You want to check these out to see if you will be able to live by the rules and regulations of your HOA community. Remember, you’re living with many other people, and there will be certain expectations and restrictions. Do these suit your lifestyle?

These rules can vary widely from community to community. In general, these documents could specify a range of items, including acceptable fencing and landscaping.

Financial Statements

Basically, these documents provide crucial information on the financial status of your community. Most importantly, take a look at the HOA’s reserve funds and operating budget.

•Reserve Fund: These docs will tell you if there are enough reserves. A reserve fund (or savings account) is used for major repairs or improvements to the community. Projects can include new signs or sidewalks, for example. A HOA needs to build up reserves for future repairs so a percentage of your monthly fees should be deposited into this fund. Also make sure you see how that money is invested.

If your HOA has a low reserve fund, it will require a special assessment (additional fees) when a major repair or renovation is needed. It’s something to consider if you’re looking at a condo in an older building, especially ones that are around 25-30 years old. Keep this in mind for older apartment buildings that have been condos for only a few years.

A good rule of thumb is at least 10 percent of the condo budget should be going to the reserve account. 

•Operating Budget: Your monthly fees are what fund most of the operating budget. Typically about two-thirds of the operating budget should be used toward expenses.

•Delinquencies: It’s important to know what percentage of unit owners are delinquent on their monthly fees. If more than 15% are more than 30 days delinquent, Fannie Mae and Freddie Mac may not approve your mortgage. Plus, if too many units go into foreclosure, the association could go into a budget shortfall, which could mean a special assessment is issued.

Even though you’re buying a home when you purchase a home within an association, you are also buying into the unit, the “business” of the association, so it’s important for you to determine how stable and financially sound this “business venture” is before taking it on.  In this stage, I provide you a checklist that covers everything you need to consider, including its reserve funds, operating budget, and even its rules and regulation, as well as what questions you may want to ask the association or property manager.

Keep coming back here each and every week to learn more about the home buying process and reach out to me through email at mccall@youragentmccall.com anytime with questions about how what you are learning applies to YOUR specific situation.  Just like every real estate agent is unique, so is every buyer and I’d love to help you apply what you are learning in this series to YOUR home buying plans.