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Your Buyer Is Preapproved. Is the Condo Eligible?
Good morning, NREB readers.
As always, we’re here to keep real estate professionals informed while cutting out the fluff. Let’s get right into it.
Your buyer has a preapproval letter, enough for the down payment, and a condo they want to buy. It is tempting to treat the remaining financing work as routine.
But a lender can be comfortable with the borrower and still be unable to finance that particular unit under the proposed loan program. The association’s finances, insurance, and the condition of the broader property can matter alongside the buyer’s income and credit.
A buyer’s preapproval does not establish the condo project’s eligibility. Finding that out late can leave both sides scrambling after inspections, negotiations, and moving plans are already underway.
Two questions to answer early
The Consumer Financial Protection Bureau describes preapproval as a lender’s tentative willingness to lend, based on assumptions. It is not a guaranteed loan offer.
For a condo purchase, the lender also needs to determine which project requirements apply. Fannie Mae explicitly treats project eligibility as separate from the borrower’s credit risk and the appraisal of the individual unit.
That distinction matters when someone says, “Another buyer just got a loan here.” A recent closing is useful information to share with the lender, but it does not establish eligibility for your buyer’s loan today.
The scope of review varies by loan and project, and some transactions qualify for a project-review waiver. Ask the lender what applies to this property and what remains unresolved.
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Look beyond the monthly HOA fee
The dues tell you what an owner pays regularly. They do not, by themselves, tell you whether the association is adequately funded or whether a major expense is approaching.
Freddie Mac encourages condo buyers to review the association’s budget, reserve study, meeting minutes, and information about special assessments. Those documents help explain the financial commitments that come with the unit.
Three areas deserve an early conversation:
Association finances. What do the budget and reserve information show about ongoing expenses and future work? Low dues can look attractive without answering whether enough money is being collected for the property’s needs.
Insurance. Get the association’s current master-policy information to the lender. Separately, help the buyer connect with an insurance professional about coverage for their own unit. The two policies serve different purposes, and the coverage details matter.
Building issues and assessments. Ask about planned or current assessments, major work, relevant inspection reports, and pending litigation. Forward the underlying documents rather than relying on a verbal description that everything is being handled.
A special assessment does not automatically make a project ineligible. Under Fannie Mae’s rules, an assessment tied to an unresolved critical repair does make the project ineligible. The lender needs to understand what the assessment funds and whether the underlying issue has been resolved.
That is why “the seller will pay the assessment” may answer a negotiation question without settling the financing question.
Start with the address and the right contact
As soon as a buyer becomes serious about a condo, send the lender the property address, project name, and association or management-company contact information. Ask which documents are needed and who will obtain them.
Before advising the buyer about financing or document-review deadlines, get a clear status update. Has the lender completed the applicable review, or is it still waiting for information? A missing document and a confirmed eligibility problem call for different next steps.
For listing agents, identify who handles lender questionnaires and document requests before an offer arrives. Gather the current information your seller can obtain and disclose known issues as required. Having the right contact ready can prevent avoidable delays.
Keep the buyer’s decision in view
Loan eligibility is only part of the decision. Buyers still need to understand the community’s rules, financial obligations, and condition even if the lender is satisfied. A cash purchase removes the mortgage review, but those ownership considerations remain.
The agent’s job is to get the relevant information in front of the buyer and the professionals reviewing it early enough to make a considered decision.
The preapproval letter gets the search moving. Before everyone starts planning the closing, make sure the conversation includes the condo project itself.
Sources
Consumer Financial Protection Bureau, Get a preapproval letter: what preapproval establishes and why it is conditional.
Fannie Mae Selling Guide, B4-2.1-01: General Information on Project Standards: project eligibility, documentation, review methods, and waivers.
Freddie Mac, What You Should Know About Buying a Condo: association finances, documents, assessments, and insurance.
Fannie Mae Selling Guide, B4-2.1-03: Ineligible Projects: critical repairs, special assessments, and project litigation.
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