Reasons Lenders Reject Loan Applications
from Condominium Owners and Buyers
When someone applies for a mortgage loan that is to be secured by a condominium, the lender contacts the HOA management company. The management company is required to provide information and documents to the lender which is utilized in the lender's decision to make the loan or not, and to charge a higher or lower interest rate if the loan is granted.
Reasons cited by lenders for rejecting loan applications, or charging a higher than market interest rate include:
- The HOA does not have a current reserve study or the reserve study they have was not performed by an acceptable, experienced provider.
- The association does not have an approved, current budget that balances.
- The HOA has not been approved by the FHA or VA.
- The reserve contributions are less than 10% of the total assessments being collected.
- The percentage of delinquent assessments is too high, generally over 5% of total annual assessments.
- The association is located in an earthquake area and there is no earthquake insurance coverage to protect the building owners and lenders.
- The buildings show a high degree of deferred maintenance such as visible wood rot, termite damage, and peeling paint.
- The HOA is self-managed.
American HOA Management