Questions to ask before buying a condo

You’ve found a condo that you could call home. You like the layout, can live with the square footage, and have already started placing furniture in your mind.

However before writing up an offer, there are a few important questions you should ask your agent.

  1. What is the level of owner occupancy in the building, and what level does my lender require? An owner occupant lives in the unit they own, rather than renting it to a tenant. Many lenders require a certain percentage of owner-occupants before they’ll agree to finance you. The exact percentage required will vary by lender, but I’ve seen this range from 50% to 80%. Why do lenders care? Pride of ownership. Owners are more likely to maintain their homes and the building as a whole better than renters would. If you default on your loan, the lender wants some assurance they’ll be able to sell your unit – a task made easier if the complex is well-maintained.
  2. Is there any pending litigation? It isn’t uncommon for condo associations (particularly in newer buildings) to have lawsuits pending with contractors. The lawsuits typically involve alleged errors made during construction or renovation. Many lenders will not agree to finance your purchase if litigation is in process. Why do lenders care? If the condo association doesn’t win the lawsuit and doesn’t have sufficient money in reserve, a special assessment may need to be levied. Each unit owner will then be required to contribute a certain amount of money (above and beyond mortgage payment and standard homeowner’s dues) to fix whatever issue the lawsuit attempted to address (defects with the building’s roof, siding, structure, etc.). As this scenario can significantly impact your ability to make the mortgage payment, your lender would prefer to avoid it.
  3. And finally, have any other written offers been received? Before having your agent write and submit an offer, make sure she/he has been in touch with the seller’s agent to find out if any other offers are currently on the table. Inexperienced agents sometimes forget to get this question answered before taking the time to draft an offer.

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