The Hidden Side of Buying a Connecticut Condo

One of my buyers found a condo he loved in North Haven.

His financing looked good. The inspection went well. Everything seemed to be on track.

Then his lender reviewed the condominium association.

The association's master insurance policy didn't meet the requirements for the buyer's conventional loan.

The lender asked the HOA to update its coverage.

The HOA declined because another unit was already under contract with a different lender that hadn't raised the issue.

My buyer had no choice but to walk away.

Fortunately, he later found an even better condo in a better location.

That transaction reinforced something I now discuss with every condo buyer:

When you buy a condo, your lender isn't just evaluating you. They're evaluating the condominium association, too.

Lending Standards Are More Than Mortgage Rates

I've written before that I watch four metrics when evaluating Connecticut's housing market:

• Inventory

• Lending standards

• Employment

• Foreclosures

Most people think lending standards are about mortgage rates, credit scores, and down payments.

That transaction changed the conversations I have with condo buyers. I spend more time explaining why the condominium association deserves just as much attention as the unit itself because I've seen firsthand how it can affect whether a transaction closes.

Unlike a single-family home, condo financing requires the lender to evaluate both the buyer and the condominium association.

That review may include:

• Master insurance coverage

• Reserve funding

• Deferred maintenance

• Litigation

• Rental occupancy

• The association's overall financial condition

IIf the association doesn't meet the financing requirements for the buyer's loan program, the transaction may be delayed while the buyer and lender explore other financing options—or it may not close at all.

Why This Matters Today

Recent changes affecting conventional, FHA, and VA condo financing have increased the scrutiny placed on condominium associations. Lenders are taking a closer look at an association's financial health, insurance coverage, and overall condition than they did just a few years ago.

That doesn't mean the deal is over. An experienced lender may still have other financing options. Buyers should simply expect more due diligence—and sometimes a different path to the closing table.

For sellers, it means buyers—and their lender—are evaluating more than just the condition of the unit.

Why I Pay Attention to Lending Standards

This is one reason lending standards remain one of the four housing market metrics I watch.

Lending standards determine not only who qualifies for a mortgage, but also which properties qualify for financing.

As financing standards become more restrictive, the number of condos for sale may stay the same while the number realistically available to buyers using conventional, FHA, or VA financing shrinks.

That's worth paying attention to.

Bottom Line

My buyer eventually found a better condo.

But neither of us expected the first transaction to fall apart because of an insurance policy on a building he didn't own.

That's the hidden side of buying a condo.

The unit is only part of the purchase.

The condominium association matters, too.