Condo association loans - Understanding underwriting criteria

If your condo association board is seeking financing, you need to understand the underwriting criteria for condo association loans. The main factors that a bank will consider when underwriting a condo association loan include (in order of importance):

1) Assessment delinquency level- Typically a bank will require that the total number of units with serious delinquencies be less than 7 to 10% of total units. "Serious delinquency" is commonly considered 60 or more days past due. It typically does not include delinquencies that are related to violations only.

2) Increase in assessments required- A condo association will almost always need to increase their assessment levels (whether through regular assessments or special assessments) in order to service condo association loan payments. Most banks like to see assessment increases limited to 50%, but assessment increases will often approach 100%.

3) Owner occupancy- Banks prefer owner-occupied condo units. Second home condo units are not as favorable, but they are more favorable than condo units that are held as investments / rented. The theory is that owner occupants are most likely to pay. Second home owners often are higher income. And, investors are most likely to stop paying assessments if the value of the condo falls below debt levels.

4) Property characterisitics- The value of units (in relation to condo assessments), quality of the property and neighborhood are all secondary factors to obtaining approval for a condo association loan.

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