How An HOA Can Affect Your Mortgage

Posted on: 19 October 2015

If you recently made an offer on a home within a community that has a homeowners association (HOA), you should not be surprised if your lender starts asking questions about the HOA. This is a completely normal part of the underwriting process, and lenders do this for protection. One of the main questions your lender may ask involves the percentage of occupied units. If this number is not right, it could affect your ability to get a loan for this particular house.

Why do lenders care about occupied units?

Each homeowner living in an HOA community will pay a monthly fee to the organization, but the units that are not occupied will not be providing any money to the HOA. The organization uses these fees to keep up with the upkeep and maintenance in the community.

When there are not enough homeowners living in a community, it can cause a financial crisis for the HOA. The HOA may not be taking in enough funds to cover the normal maintenance the community needs. This can leave problems for the homeowners to deal with. 

What problems can this create?

One problem created by a lack of occupied units is higher dues. If the HOA is not collecting enough money from the homeowners that are living there, they might vote to increase monthly fees. If this happens, the homeowners living there might not be able to pay their bills, and this could affect the lenders involved.

The second problem is the potential for a decrease in home values. If the HOA cannot take care of the community, they may let it get run down. A run-down community may not be as attractive to buyers any more, and this could cause a drop in the value of the homes in this community.

What percentage do lenders want?

Every lender has a different percentage they are looking for, and most lenders will review the actual budget of an HOA before turning down a loan application for a percentage that is not what they were looking for. If you would like to know what percentage your lender is looking for, you can ask.

There are other requirements and things your lender might look into if you are trying to purchase a home in a community with an HOA. To learn more about these things, contact a lender that offers information on home mortgages in your area.