You probably know that things like income, assets and debts, credit score, employment history, as well as your down payment amount all affect the pre-approval process and mortgage you’ll qualify for. Did you know that the type of home also impacts how much you’ll be approved for? Freehold homeowners, feel free to skip this one… condo owners, this one is for you!
A status certificate is like a report card for a condominium corporation. The certificate outlines how healthy your new building will be, describes the financials of the building, any pending decisions (upgrades, maintenance, potential future issues or replacements), and all the common elements that the owners (or condo board) have to decide on together. Ultimately, what’s stated in this document is also reflected in your condo fees, so it’s pretty important.
The building’s status certificate is typically made available for a small fee so you can review it before you make an offer on the condo. Having your lawyer review the certificate will allow them to point out any red flags, especially ones that would directly impact you as the buyer. Depending on the situation, a status certificate also can impact a lender’s willingness to finance the purchase (due to pending lawsuits, special assessments, limited reserve funds, etc.).
If you haven’t had time to get it, you do have an option for your offer to include a condition of the status certificate review. Ask yourself what you’re getting for the condo fees you’ll be paying (sometimes utilities, interior and exterior maintenance, amenities like gym, pool, hot tub, etc.). Remember that condo fees also scale depending on the cost of your unit. If you can, ask others in the building if they like the amenities or if it’s maintained well. All of this plays into your condo fees and what’s listed in this document. After all, lenders will have to work in your condo fees for your pre-approval as an expense, so you might as well avoid any surprises.
Myth: Condo fees don’t affect your approval.
Fact: Condo fees change your approval drastically because they’re calculated as a direct expense you have to be able to pay monthly, on top of your mortgage and everything else. We calculate 50% of condo fees in a mortgage application.
Pro tip: Make sure you tell your finance specialist if you’re buying a condo because the pre-approval numbers will not be the same. Typically you’ll qualify for less mortgage on a condo than on a free-hold home due to condo fees (assuming you’re at the top of your budget).
I had a client earlier this year who we had gotten pre-approved but called with questions surrounding some things their lawyer caught during a status certificate review for a condo they were bidding on. The lawyer mentioned that there was a pending lawsuit and, if the condo board lost, each condo owner would have to pay out about $2,500. Usually, these things are only found to be a problem after the client has already waived their financing condition and it’s at the lawyer’s office trying to close.
Instead, we chose to get ahead of things and sent the certificate directly to the lender. We asked if it was something that would stop them from financing the property and, in this case, the lawsuit wasn’t pending and the lender felt the liability was minimal, giving us the green light to go ahead. Even though the issue was hypothetical, it’s better to check all the boxes before moving forward on a deal and encountering it later.
In another client’s case, we were refinancing their condo and the deal was (almost) done. At the lawyer’s office, a day before closing, I get a phone call from the lender telling me they won’t proceed with the deal anymore due to an issue with the status certificate. They said the status certificate implied a special assessment of over half a million dollars to repair “foundation issues”. The lawyer and I get on the phone to review the status certificate together and it turns out that it’s just the foundation of some landscaping in the front of the home!
I called the lender and described what was going on but they were hesitant to believe me. So, we pushed out the closing date (never close on Friday!) and I drove to the client’s home to take a better look. As we thought, it was just the front steps. A poorly-written statement almost blew up the whole deal but a deep breath, some common sense, and a weekend motorcycle ride to the home saved the day!
Contact the Kyle Miller Mortgage Agent team to learn about the financing options available to you!
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