Tuesday, May 14, 2019

Income Required to Qualify for Condo Loan Increases as HOA Fees Increase: A Graph and Table Illustrate the Impacts.

There has been a recent pick up in interest in condominiums as an affordable home ownership alternative to single-family detached housing. (See recent Oregonian story HERE). 

[Full disclosure, I have lived in condos for 40+ years]. 

One of the unique features of underwriting a condominium loan is the inclusion of homeownership association fees as part of a borrower’s fixed monthly obligations. This  reduces the maximum loan that would otherwise be available compared to a single-family detached home but only if both were at the same price point (and generally condo prices are lower than detached SF housing).

To illustrate the underwriting impacts of varying HOA fee levels, I have constructed an example in the PDF HERE and embedded below.

  • $375,000 sales price. 
  • 20% down payment (NO mortgage insurance required).
  • $300,000 loan amount.
  • 4.5% loan interest rate.
  • 1.1% property tax rate.
  • 0.50% insurance rate.
  • 41% maximum debt to income ratio.
  • $500 in additional fixed monthly obligations for car/student loan etc.
  • Variable condo fee from $0 to $1,000.
  1. With NO homeowners association fee a buyer (with assumptions above) could qualify for a $300,000 loan with an income of $73,758.
  2. With a HOA of $300 qualifying income increases by 12% to $82,538.
  3. With a HOA of $500 qualifying income increases by 20% to $88,392.
  4. With a HOA of $1,000 qualifying income increases by 40% to $103,026.

Originally created and posted on the Oregon Housing Blog

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