Condo Life

About Owning in a Homeowner Association

As a condo owner, you automatically are a member of the homeowner association. While you individually own your condominium property, you own the common area jointly with all the other owners. 

The Association is governed by a Board of Directors, elected by the owners, as set out in the association's CC&Rs, Minutes, By-Laws, Rules and Regulations, Reserve Study--these are important association documents which should reveal financial information such as current dues, special assessments and upcoming assessments, the rules and regulations governing owners use of the common areas, and the overall status of the homeowner association. Homeowner associations are also bound by state laws, which grow a little more complex each year. It's important to know that a board of directors is given certain powers, along with having fiduciary responsibilities to the owners, by law. Take the time to review these documents when you receive them.

Occupant and investor buyers should request and study all HOA documents carefully during escrow for terms affecting their plans for ownership, i.e., rules about tenants; visitors; parking; the number, size/weight and type of pets, use of common area facilities such as barbecue areas, pools and spas, balconies, flying flags, antennas, patios and other common areas. Many buyers (and sellers) believe that balconies and patios adjacent to the unit are included in their purchase or sale; in fact, the CCRs or deed will spell out the status of these areas, but they are most often "exclusive use" common areas, not part of the unit, and under the ultimate rule of the homeowner association.

Loan Approval

If you're buying or selling a condo, there will generally be two choices in types of loans: conventional, or FHA/VA, loans. The buyer's lender will also be interested in the financial condition of the building as reflected in the amount of reserve assets, the amount the association deposits into its reserve account from its total annual budget, the reserve study, and the financial statements and minutes.  Buyers and sellers need to know, for example, that owners more than a month late on dues may not exceed the new 15% limit set by mortgage financiers Fannie Mae and Freddie Mac.  With just a few exceptions, most lenders require at least 10% down on a conventional loan.

FHA loans, most commonly used by first-time buyers who make up more than 40% of the market, have specific guidelines for homeowner associations in  meeting their criteria. These rules are established by HUD, not individual lenders.

As of 10/1/2009, the the FHA approved condo list is wiped clean for any HOA approval issued prior to 9/1/08.  There are no more FHA "spot approvals" for individual units, and the entire project must now meet the FHA 2-year approval plan.  This change is very important for both buyers and sellers and may affect the listing and the sale of the unit. If certain criteria are not met, the unit may require financing other than FHA.


As of May 1, 2009, lenders are requiring insurance, known as an HO-6 policy, for condo unit interiors if the HOA master policy does not cover it:

Fannie Mae / Freddie Mac (as well as most other Lenders) now require that lenders verify that hazard insurance (prior to closing) for all condominium projects with attached units, including two- to four- unit projects, covers fixtures, equipment, and other personal property inside individual units if they will be financed by the mortgage.  The updated policy now requires that the borrower obtain a "walls-in" coverage policy (commonly known as HO-6 policy) unless the lender can document that the master policy provides the same interior unit coverage. The master policy must include replacement of improvements and betterment coverage to cover any improvements that the borrower may have made to the unit. 

The HO-6 insurance policy must provide coverage for no less than 20 percent of the condominium unit's appraised value. The standard requirement for a 5 percent deductible applies. 

For current (within last 30-60 days) data and market information, ask for my MLS Report.

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