2 Things Lenders Look At When Issuing Loans For Homes With Homeowners Associations

One step a lender will take when you apply for a home loan is analyzing the property you are trying to buy. During this process, the lender will complete numerous steps, but there are more steps involved if the property you are buying is part of a homeowners association (HOA). Here are two things you should be aware of when applying for a home loan for a property with an HOA.

The lender will want to know the percentage of occupied units

An HOA is an organization that controls and maintains a neighborhood. The HOA relies on monthly fees from the homeowners, and it uses these fees for all upkeep, repairs, and maintenance needed for the exterior parts of the homes, the yards, and the common areas in the neighborhood.

Before the lender will approve the loan, they will look at the number of unoccupied units in the neighborhood. When there is a high percentage of unoccupied units, the HOA may not be receiving enough money to pay for all the things it is responsible for. This could result in two things:

  1. They may ask each homeowner to pay higher fees each month – If this is the case, you may feel financially strapped after moving in, because the fees would be more than you had anticipated.
  2. They may stop completing repairs and maintenance – If this happens, your neighborhood might begin to crumble away. The yards may no longer get mowed, and the community pool might be out of order.

Lenders care about this because it could affect your ability to repay your loan. If you are asked by the HOA to pay higher monthly fees, you may have a harder time affording your loan. If the value of your house drops because the HOA fails to provide maintenance to your neighborhood, your loan may be underwater, which also presents a higher risk of the homeowner defaulting.

The lender will review the HOA's reserve fund and policies

The second thing to understand is that the lender will want to know more about the HOA you will be under when you move to this house. They will review the policies of the HOA to ensure that they are legal and fair. There are times when HOAs will get extremely technical with their rules and governances. For example, they might dictate what type of flowers are allowed in the yard. When rules are too tight, homeowners may feel like they lose their sense of freedom. This could lead to a homeowner moving out.

Secondly, they want to see the HOA's reserve fund and how it is managed. A reserve fund is a special account used to hold part of the fees collected each month. The purpose of this account is to save up for major projects needed, such as roof replacements.

If the lender sees any issues with the management of the HOA that might increase the risks on this loan, they might deny your loan application.

If you want to make sure you do not get denied when buying a property with an HOA, make sure you thoroughly evaluate and investigate the community and the HOA before choosing a home to buy. Once you find the right one, you could then apply for a home loan {from lenders like MCS Bank}.