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barhopping
Posts: 21
Registered: ‎02-25-2009
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Is it possible to get a loan in an insolvent HOA community?

There is a really good deal on a PUD that can only be a cash purchase due to HOA insolvency issues.   The complex is only a few years old and most bought at the top of the bubble so there are a few foreclosures, short sales, non payment of dues.  If the property was purchased in cash, how soon would I be able to get cash out to repay a loan from a relative or would it be difficult/impossible to get a loan with the HOA issues, all advice is welcome, thanks!
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Loan_Educator
Posts: 135
Registered: ‎12-01-2009
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Re: Is it possible to get a loan in an insolvent HOA community?

Hello barhopping,

 

Is the property a Condo, or a detatched single-family dwelling that is zoned as a PUD? Unfortunately, your prospects for getting financing (either for purchase or for cash-out refi after buying in cash) on a Condo with an insolvent HOA are slim to none. Delinquent dues are also problematic. FHA has implemented a Condo approval process (which roughly mirrors what Fannie Mae already has in place) which, among other things, requires a capital reserve study that an insolvent HOA isn't going to pass muster on, and also requires an overall delinquency rate on dues of no more than 15%. There are many other variables and restrictions that come into play but suffice it to say, if the HOA is insolvent your prospects for getting any kind of institutional financing look grim.

 

You might consider asking another owner or manager of the HOA if there are any options they know of - while unlikely, there might be some source of private or portfolio financing that they have recently utilized.

 

On a more general note (not necessarily on this property), with regard to paying cash for a property and doing a subsequent cash-out refi, versus just getting purchase financing for the property to begin with: I highly recommend the latter course. Purchase financing will typically give you the most competitive rates, whereas there are often add-ons for cash-out financing depending on your loan-to-value. Also, rates are at historic lows right now, so it might behoove you to lock into a good rate on a purchase loan now, as opposed to waiting until you're ready to refi when rates might potentially be higher. Finally, you are unlikely to obtain cash-out financing within 6 months of purchasing a property as this is a common restriction in the industry, and you might not want to wait that long (especially in light of my last point, that rates have the strong potential that far down the road of being higher than they are today).

Clay
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LoansbyJW
Posts: 3,212
Registered: ‎04-30-2009
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Re: Is it possible to get a loan in an insolvent HOA community?

For starters, cash out refinances generally require 6 months ownership before you can apply. That then means you won't get your cash for about 8 months giving most turn times. A Home Equity Line of Credit could be put on the home, provided it's Owner Occupied shortly after closing, but they will likely ask a few questions about the HOA so you cannot be certain this will close.

 

The bigger question is why buy in this community at all? If the HOA is insolvent, you as an owner might be facing tens of thousands of dollars in assessments or sky high dues to catch the HOA up. This will put price pressure on current owners and may press all prices down to the point where your "good deal" isn't any longer. Troubled units are that way for a reason. That same reason tends to continue on and on unless serious management changes are made. Are you willing to bank on that happening with family funds? Also, stigmatized properties may be very, very difficult to re-sell even if the HOA is repaired. If you are going to use this property as a rental, then it might make sense to buy, but on balance the advice I'd listen to is from trusted advisors who say "avoid this purchase".

 

Thanks for reading,

 

LoansbyJW

 

John Wheaton NMLS 653018 | Redfin Open Book Recommended Lender
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barhopping
Posts: 21
Registered: ‎02-25-2009
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Re: Is it possible to get a loan in an insolvent HOA community?

I am not sure on the how the property is zoned but it is a detached unit and is called a PUD in the listing, only reason I considered an all cash offer (I have 20% down for conventional) was due to the HOA issues and my observation in general seeing lower cash offers being accepted over higher financed offers.  The story on the HOA is confusing where it sounds like there are sufficent cash reserves (over $150K) but about a third (out of 100) units delinquent.  It looks like this one will be a pass, thanks for your insight Loan_Educator and LoansbyJW!

 

Another question.  If a regular SFR to live in was purchased with cash, do you think the cashout/refi timeline would also be 6-8 months ago?  Would a HELOC be a better option? The purchase would be on the lower end of the market (around $250K), thank you!

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LoansbyJW
Posts: 3,212
Registered: ‎04-30-2009
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Re: Is it possible to get a loan in an insolvent HOA community?

Yes. It will be 6 months, plus time to approve and process the loan. Since it's "cash out" anyway, if you get a HELOC now you can get the funds you need at a sub 5% rate (HELOC) or sub 7% rate (HELOAN) then replace those funds with a standard 30 fixed rate mortgage later. It's the "now" question that will influence how you need to go. If you need the funds "now", then get a HELOC. If you can wait, then do so.

 

Thanks for reading,

 

LoansbyJW

John Wheaton NMLS 653018 | Redfin Open Book Recommended Lender
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