Most of the condominiums purchased today are financed with a mortgage, and while there are certainly more restrictions to lending for condominiums, there are definitely mortgages available.
However, perhaps, you were pointing to a specific condominium complex when you were provided with advice regarding the infeasibility of mortgages within the community. There are definitely instances when a condominium complex's financials, general status, condition, and litigations will disqualify it and all the homes within from obtaining mortgages. Here are just some of the reasons that a condominium community might be "unmortgageable."
1. Construction Defect Litigation - Depending on the size of the defect litigation, many lenders shy away from HOAs with construction problems. Not only are construction defect claims difficult to litigate, expensive and lengthy, the lawsuit often calls into question the construction and quality of the asset--the building. If the lawsuit is comprehensive and huge, I've seen lenders stay away from a complex for YEARS, which essentially means that anyone who owns a home there cannot sell and anyone wanting to buy may only do so with cash!
2. FHA Loans - If a home buyer is using an FHA loan, the is a restriction on how many homes may be financed within any community. Once the community "tops out" with the number of FHA backed home purchases, any new FHA buyer would not be able to purchase in that community.
3. Higher than Allowed Non-Resident Owners - The mortgage companies as well as Fannie Mae and Freddie Mac (the two conventional mortgage backers) have set guidelines called "Seller Servicer Guidelines" that restrict the number of rental units within any community. At present, that figure is 40 percent--so no more than 40 percent of the homes may be rental units. With the recent economic downturn, many HOAs are dealing with more than average number of non-resident owners, so if the number increases to 50 percent, for example, the lenders may not be willing to provide mortgages.
4. Inadequate Reserves, Inadequate Insurance, Inadequate Financial Policies - Every time I tell a Board of Directors that they cannot sacrifice their reserves in favor of lower assessments, I get the dirtiest looks. Well, imagine how surprised those same people are when they find out that no one can buy and no one can sell in their community because the reserves are insufficient to meet minimal funding requirements. Each HOA must have reserve studies and must prove to anyone who asks (including lenders) that there is a plan in place to pay for future repairs and refurbishment of the buildings and grounds. So if the Board of Directors has not instituted a solid plan for financing future repairs, or has proven (through their financials) to be less than careful in their spending of money, the lenders may decide NOT to provide mortgages in that community.
5. Catastrophic Damage - Any time a condominium community suffers catastrophic damages, especially when those damages are not fully covered by the Association's insurance, the community may not be able to obtain loans until such time as the buildings are restored and habitable again. The reason, of course, is that, even if the home is located in an undamaged building, the ability to rebuild reflects again on the financial solvency of the homeowners association. If the HOA and its membership cannot restore the buildings, then it is unlikely that other buildings would be restored in a similar situation which jeopardizes the lender's collateral--the building.
So these are just some of the reasons that a particular homeowners association or condominium complex may be considered "unmortgageable". To learn why the Realtor stated that the condominiums in which you expressed interest were not able to obtain mortgages, contact that Realtor for more information.
Grace Morioka, SRES, CID/HOA Expert
Co-Author: Homeowners Association: A Guide to Leadership and Participation
Area Pro Realty
San Jose, CA
But other than senior communities, I have not come across condo developments where financing is not allowed.
Best of luck to you!!!
Kawain Payne, Realtor
Regarding litigation....even if it's still in the mitigation stage where the protagonists are trying to resolve the situation without going through formal litigation) involving the condominium complex, the lenders are not inclined to give loans.
This is happening now to a condo complex where I just closed on a short sale listing. Fortunately, we had an all-cash buyer. But unfortunately for one of my buyers for another unit, the moment that the HOA answered "yes" to a quesionnaire that asked "Is the HOA involved in any litigation, mediation, arbitration or other dispute resolution process" --- the lender turned them down. Other buyers in the same complex had their loans turned down too. Until the situation is resolved, that condo could only sell to all cash buyers.
So if you're looking at condos and you need to get a loan, that's one of the most important question you and your agent should ask.
Also if the condo is on the HUD approved list you can get an FHA mortgage with only 3.5% down.
You can search the HUD list here:
Hope this helps.
Here's a good link to use as reference if you are indeed planning to get an FHA loan http://www.myfha.net/FHAguidelines/FHAcondos.html
Good luck to you.
P.S. --- i lived in Dallas TX (as well as FL), and you're right.....coming to California is like going to heaven!
I would check with a mortgage broker or banker in your area. I find that to be a ridiculous answer -- are you sure he/she is a licensed realtor? There are some restrictions and John Burke has a good answer below. But do call someone in your area as he/she would know exaclty and can check out regarding any complex in which you might have an interest.
Maggie Hawk, REALTOR
Watson Realty Corp.
Whoever told you that is misinformed. If you are considering moving here we work with out of area buyers all the time and would be glad to assist.
Lance King/Owner-Managing Broker