The Questions to Ask When Buying a Condo in Massachusetts
Before you make your Boston condo purchase, there are a lot of things your should find out when buying.
Making a purchase in a condo development is more involved than buying a home here in Massachusetts. The reason being is that not only are you buying a piece of property but that you are also buying a condo association. In a way you are making two purchases overall. If you are getting a mortgage to make your purchase, your mortgage lender or mortgage banker will definitely scrutinize the condo association as much as your financial worthiness and in some cases more. When loans are made on condos they are basically underwritten in two ways. First the borrower is underwritten and then the condominium association is closely looked at. Before you make your Boston condo purchase here are some things to consider finding out. The list of questions to ask before you buy your condo in Boston is a bit lengthy. Since I have been a Greater Boston Realtor for over 15 years, I would suggest these items be looked at minimally.
Here are the Basic Questions to Ask When Buying a Condo in Massachusetts
What is the monthly condominium fee and what does it pay for?
From property to property condos fees range from manageable to off the charts. The monthly condominium fees can range quite dramatically from condominium to condominium.
Condos fees will be based on the number of units in the complex and the amount of the common area to be maintained by the condo association. Some condos opt to manage themselves and others choose to contract with professional condo management companies.
You mustn't forget that if you have other amenities at the condo you are considering such as a pool, club room, gym, and concierge then you need to understand you will be paying for these in the condo fees. As you look around take note of all the things in the common area. These things all cost money and will need to be maintained. Maintenance as you know requires cash. Cash comes into the condo associations on a monthly basis in the form of collected condo fees.
The age and condition of the property will dictate the monthly condo fees to some degree. Aging materials such as walkways, pavement and paint will have an adverse effect on a highly desirable low condo fee.
For budgeting and financing you need to know the monthly fee and exactly what you are getting for it.
When you look at the condo please ask for the MLS printout on the property. There is a section which is clearly deigned to answer the section of what the condo fees include. The image below is screenshot of a condo which I sold a few years ago at The Baker Chocolate Factory Condos in Dorchester's Lower Mills area. You will see that condo fee section clearly states what is included.
A Note About the Purchase Contract when Purchasing a Massachusetts Condo
As a part of my real estate practice, I like to ensure that all parties involve be protected in the transaction. One of the items I like to have the attorneys include in the contract is some language around the amount of the condo fee and what is included with the monthly condo fee.
Memorializing this in the contract will help alleviate any issues down the line in case something was omitted by the seller. Please note that if you are seller, double check the accuracy of your statement of what is included in the condo fee. Sellers you will be held liable for statements in this contract.
Thinking of selling your condo in Greater Boston...Let's get started
What are the Rules and Regulations for the Condo?
Some condo complexes in the area can be quite onerous with their rules and regulations. If you have a pet, you need to make sure that fido or scruffy is a welcome addition. Otherwise it may make sense to ask your real estate agent to only select properties which are pet friendly. If you have a Harley Davidson, you need to make sure that the Road King is welcome in the parking lot.
If you are one of these nomadic corporate types that could be relocated to the "home office in Dayton" the you may want to ensure that you have the right to rent the condo should you need to move suddenly while still holding a mortgage on the property.
If you like to get inspiration from Chip and Joanna on HGTV, your renovations may not be welcome at your desired condo complex. Yes, you read that one right. Some associations can limit what you can and cannot do to your own property.
Needless to say, your buyer’s agent along with your attorney should review and approval all condominium documents, including the master deed, declaration of trust/by-laws, covenants, unit deed and floor plans to ensure compliance with state condominium laws. Through review of these condominium documents, you will discover what limitations may be place upon you as unit owner. If you need help finding a reputable and competent real estate attorney, please feel free to call me at 617-615-9435.
After reading this, you may want read the article I wrote about deciding whether a condo is right for you.
How Many Units are Owner Occupied?
The owner occupancy ratios are a very telling indicator of the overall health of the condo association. Lenders rely on this for condominium underwriting. If the number of units owner occupied is too low, some lenders will not make the loan.
Another big issue is how owner occupancy affects financing and the potential resale of your condo. On a resale, issues with the Fannie Mae and FHA condominium underwriting regulations may arise based on the limits around owner-occupancy rates. This issue could arise when you go to sell your condo
If you are going to be an owner occupied unit owner, then you will want to ensure that the condo you are looking to purchase has a high concentration of owner occupied units. If you have a large renter population or perhaps live in an area where there are a lot of college students, you may become subjected to unwanted noise and neighbor issues.
Let's say your buyer is seeking conventional financing, you will need to check to see if the complex is a Fannie Mae approved condo. If FHA financing, check if it’s an FHA approved condo. You may have a great job, money in the bank and be all paid up on your student loans, but like I mentioned before the complex will be scrutinized by the bank. If the condo is not on the approval list by FHA or Fannie Mae, then you personally may not be able to get a loan. Low owner occupancy can affect the approval of a loan.
If you are looking to make a purchase your agent should be able to help you identify whether or not a condo is FHA or Fannie Mae approved. If you wold lile to know whether or not it is a approved, I would recommend you connect with a lender who can make the determination before you go out and waste your time on a search only to find out that you cannot get a loan since the condo project is not approved.
If you are looking for competent lender to help you out, I would suggest that you reach out to Thea Simolari of The Mortgage Network.
How does Owner Occupancy Affect a Buyer of a Condo?
What does this mean for buyers? This means that getting into a condo is that much more difficult. Many investors swoop up condos as it is low maintenance rentals. Which highly affects the O.O.R.
When looking into purchasing a condo make sure you or your agent does due diligence to see if it is FHA approved, what the O.O.R. is and if you may be able to come up with the 10% down if the rate is at least 70%.
This can save a lot of heart ache, time and pester when looking at purchasing these properties.
If it is classifies legally at a town home this rule does not apply so make sure to check what the unit is legally described as.
The Lender will Require a Condo Questionnaire
A condo questionnaire is a typically about 4-5 page document that is sent to the condo board, trustees o condo association management. It is designed to uncover everything about the association. It will help the lender discover some of the following items and whole lot more:
- People delinquent on their condo fees
- Litigation Against the Condo Complex
- Money in Reserves
- Insurance Information
- Owner Occupancy Rates
- Special Assessments
- Any Future Development
Here is an image of page 1 of condo questionnaire from Fannie Mae. If you are thinking about selling your condo in Boston, it might be a good idea to pre-fill out a condo questionnaire to get an understanding of your condo association. If you would like to interview and agent for the job of selling your Boston area condo, I would love to submit my resume and interview for the job. Get the value of your condo now
Lori Turoff of Keller Williams in Hoboken, New Jersey does a nice job detailing a condo questionnaire. Lori has a great web site covering Hoboken New Jersey. If you are thinking of relocating NYC/ Northern Jersey....let me connect you with Lori. Give me a call at 617-615-9435.
I’ve written about this before but I think it bears repeating. When most banks make a loan, they intend to sell that loan in the secondary market. Since the credit crisis of 2008, the only buyer of mortgages in the secondary market is Fannie Mae. In order for Fannie Mae to buy a mortgage, the underlying building must meet certain requirements. (See the full blown version of those requirements here). Every time a buyer applies for a mortgage, the lender has the condo association fill out something called the “condo questionnaire”. It looks like this and, after each question, is the required answer in order for the condo to be in compliance with Fannie Mae’s requirements. If the answers come back “wrong”, chances are the loan will be denied. Take heed – the bank does not get into any sort of explanation of the answers. It’s a simple yes or no inquiry. They don’t care why you answer the way you did – just that it’s not what they need to approve the deal. - Lori Turoff from Hoboken Real Estate News
If you would like the full Fannie Mae Condo Questionnaire you may download it here
What Does The Master Insurance Policy Cover?
You need to examine the master insurance policy to see what is covered by the master insurance coverage. You need to also get your own homeowners policy for your own individual unit. It's sometimes a good practice to use the same company for individual unit homeowners policy. That way if there is an issue with a common area roof leak that affects your individual unit there is no back an forth finger pointing about where responsibility lies.
Insurance is a tricky subject. I think we live in age where there are tons of ads on television and "you can click here to get insurance". The Internet may make for a great market of the quick insurance policy, but the value of the policy is when you actually need to use it.
Sometimes the cheapest policy isn't always the best policy. You get what you pay for. If you have a claim, you are going to want a blue chip insurance carrier not the 800 number on the Internet or television.
I always recommend that you find a good insurance broker who will get you the adequate coverage. Someone who I trust for insurance in Greater Boston is Jeff Lydon, a partner in Lydon and Murphy out of Norwood. Lydon and Murphy is a family owned and operated insurance agency. Lydon and Murphy Insurance Agency was founded in 1966 by James Lydon & Thomas Murphy. In 1977, the agency moved to Route 1 in Norwood where it remains today. In the early 90’s, Jeffrey Lydon & Stephan Murphy (sons of James and Thomas) joined the agency. In January 2010 Jeff and Steve took over the agency from their fathers and continue to run the agency today. You can reach Jeff of Lydon and Murphy Insurance at 781.762.4280
In the event that you make it up and the ranks and become a trustee at the condo you purchase in, please make sure that there is Directors and Officers Liability Insurance in place before you take any "management job" with the condo association. Jeff Lydon would be able to help you here as well.
Review the Capital Reserve Account and Review the Budget
Richard D. Vetstein, a Greater Boston real estate attorney who does a lot of work around the conveyancing (transfer) of condominiums has done a really good job specifying some of the criteria for looking at a condominium budget.
Richard D. Vetstein, Esq. is a nationally recognized real estate attorney and past Chair of the Boston Bar Association's Title & Conveyancing Committee. For more information about him, click here. You can contact Attorney Vetstein at firstname.lastname@example.org or 508-620-5352.
Here is what Richard Vetstein says on his "Massachusetts Real Estate Law Blog" about the budget and capital reserves
"The capital reserve fund is like an insurance policy for the inevitable capital repairs every building requires. As a general rule, the fund should contain at least 10% of the annual revenue budget, and in the case of older projects, even more. If the capital reserve account is poorly funded, there is a higher risk of a special assessment. Get a copy of the last 2 years budget, the current reserve account funding level and any capital reserve study."
Find out if there are Any Pending Special Assessments
Special assessments are one time fees levied against individual units owners for capital improvements An example of such may be for paving or painting. Special assessments can run into the thousands.
Specfically you need to make sure that you are not buying the special assessment with the purchase of the unit. I would encourage you to really delve into past meeting minutes. This will show you what may be planned in terms of capital improvements and overall repairs.
When you purchase the condo you will want to make sure that get a copy of the 6D certificate. The 6D certificate is the instrument that denotes that the property is free of any liens from the condo association.
As you can see there are a lot of questions when purchasing a condo in Greater Boston. This is not even the whole list but the tip of an iceberg. If you are contemplating the purchase of a condo in Boston, it would be my absolute pleasure to assist you with any questions you may have around such purchase.
Want to get a conversation started with me?
Michael is a Greater Boston Area Realtor with Keller Williams Realty
Michael Mahoney covers Boston and all of Norfolk County here in Massachusetts.
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