Buying a condo (HOA review, special assessments)

A condominium (condo) is a form of real estate ownership where you own your individual unit (the interior space within the walls) and share ownership of common areas — lobbies, hallways, roofs, elevators, pools, parking structures, and grounds — with all other unit owners in the complex. A homeowners association (HOA) governs the shared spaces, sets rules, collects monthly fees, and manages the building's finances.

81 steps across 12 sections

1. What You Own

  • Your unit: The interior space from the drywall inward (paint, flooring, fixtures, appliances)
  • A percentage of common elements: Shared ownership of the building structure, roof, exterior walls, hallways, elevators, parking areas, amenities, and grounds
  • Limited common elements: Features used exclusively by your unit but owned by the HOA (your balcony, assigned parking spot, storage unit)

2. What the HOA Controls

  • Exterior maintenance and repairs (roof, siding, painting, landscaping)
  • Common area upkeep (lobbies, pools, fitness centers, hallways)
  • Building insurance (master policy covering the structure)
  • Reserve fund management for future capital expenses
  • Rule enforcement (noise, pets, rentals, renovations, parking)
  • Annual budgeting and monthly fee collection

3. Your Financial Obligations

  • Monthly HOA fees (typically $200-$800+/month depending on location and amenities)
  • Special assessments when they arise (can range from $1,000 to $50,000+ per unit)
  • Your own mortgage, property taxes, and unit insurance (HO-6 policy)

4. Essential Documents to Obtain and Review

  • Pet restrictions: Breed limits, weight limits, number of pets allowed
  • Rental restrictions: Minimum lease terms, percentage of units that can be rented, investor caps
  • Renovation rules: What modifications require board approval (flooring changes, wall removal, plumbing/electrical work)
  • Use restrictions: Home business limitations, short-term rental prohibitions (Airbnb), age restrictions (55+ communities)
  • Assessment authority: How the board can levy fees, increase dues, and impose special assessments
  • Transfer fees: Some HOAs charge a transfer or move-in fee ($200-$2,000)
  • Right of first refusal: Whether the HOA can block a sale or match a purchase offer
  • Board election procedures and term limits
  • Meeting frequency and quorum requirements
  • Voting rights (one vote per unit vs. weighted by square footage)

5. What Triggers Special Assessments

  • Underfunded reserves: The HOA did not save enough money for predictable capital expenses
  • Unexpected major repairs: Storm damage, fire, flood, structural issues discovered during inspections
  • Insurance shortfalls: The master insurance policy doesn't fully cover a loss, and owners must fund the gap
  • New legal requirements: Building code changes, mandatory structural inspections (post-Surfside laws), ADA compliance upgrades
  • Deferred maintenance: Years of neglect catching up — a new board inherits problems and must act
  • Construction defects: Developer-era problems that emerge after the warranty period
  • Under-budgeting: Previously planned work costs more than estimated

6. How to Research Special Assessment Risk Before Buying

  • Review the reserve study: Low funded percentage = high assessment risk
  • Read 2-3 years of meeting minutes: Look for discussions about deferred projects, upcoming repairs, or board debates about assessment vs. fee increase
  • Ask the seller directly: "Have any special assessments been announced, proposed, or discussed?" Get the answer in writing
  • Review the HOA's assessment history: Has the HOA levied special assessments in the past 5-10 years? How often? How large?
  • Check the building's age: Older buildings (20+ years) have more components reaching end-of-life
  • Look at insurance cost trends: Rising premiums may indicate the building is in a high-risk area or has claims history
  • Ask about the reserve study's assumptions: Are replacement cost estimates current, or based on pre-inflation numbers?

7. Red Flags for Special Assessment Risk

  • Reserve fund below 50% funded
  • Reserve study older than 5 years (or nonexistent)
  • Multiple special assessments in the past 5 years
  • Meeting minutes referencing "deferred" repairs or capital projects
  • Building over 25 years old with no major renovations
  • High insurance deductibles or difficulty obtaining coverage
  • Board refusing to share financial documents
  • Many units for sale simultaneously (owners may be fleeing anticipated costs)

8. Who Pays: Buyer or Seller?

  • Already levied assessments: Typically the seller pays assessments that were levied before closing. Negotiate this in the purchase contract.
  • Future assessments: The buyer is responsible for any assessment levied after closing, even if the underlying problem existed before you bought.
  • Critical contract language: Include a clause requiring the seller to disclose all known pending or contemplated assessments. Ask your attorney to add specific assessment liability language.

9. Deeper Financial Analysis

  • Total annual income vs. total annual expenses
  • Is there a line item for reserve fund contributions? (Should be 15-40% of total budget)
  • Are maintenance costs increasing faster than fee revenue?
  • What is the management company fee? ($15-$25/unit/month is typical)
  • Current reserve balance
  • Annual contribution to reserves
  • Compare against the reserve study's recommended funding plan
  • Calculate years of reserves at current spending rate (less than 3 years = fragile)
  • Total delinquent dues
  • Number of units in arrears

10. FHA Condo Approval

  • Building must have at least 2 completed units (5+ for some approval types)
  • At least 50% of units must be owner-occupied (primary residence or second home)
  • No more than 50% of units can be FHA-insured (concentration limit)
  • No more than 15% of unit owners can be 60+ days delinquent on HOA assessments
  • The HOA must carry adequate hazard, flood, and liability insurance
  • The project must be complete (no active phased construction affecting habitability)
  • Adequate reserves: at least 10% of the annual budget contributed to reserves
  • No pending litigation that could affect the project's safety, soundness, or habitability
  • FHA approval lasts 3 years, after which the HOA must re-certify

11. VA Condo Approval

  • 70% presale requirement for new developments (70% of units must be sold/under contract)
  • The project must be fully completed
  • VA requires review of CC&Rs, bylaws, and financial statements
  • Adequate insurance coverage
  • No excessive commercial space (typically less than 25% of total floor area)
  • VA approval is a lifetime approval (unlike FHA's 3-year renewal)
  • The approval process can take 2-3 months
  • A project can be FHA-approved but not VA-approved (and vice versa)
  • VA approval is permanent; FHA requires renewal every 3 years
  • VA has stricter presale requirements for new construction

12. Conventional Loan Considerations

  • Owner-occupancy ratio typically 50%+
  • HOA must have adequate reserves and insurance
  • No single entity can own more than 20% of units (except in projects with 20+ units)
  • Lenders may add "condo-specific" overlays beyond Fannie/Freddie minimums
  • Condos may carry slightly higher interest rates (0.125%-0.5% more than single-family)

Pro Tips

  • Request the HOA resale package early
  • Search public court records
  • Count "for sale" signs
  • Check the HOA's insurance policy
  • Hire a real estate attorney experienced in condo transactions

Sources

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