USDA Purchase Loans for Condo Units

imphot_3Probably the most under-utilized purchase loans for condominium units are those insured by the USDA.  Like the VA and FHA, the USDA Rural Development (RD) program is a home loan insurance that allows the financing of condominium units.

One of the most important criterion for use of this program is that the loans are only available in areas in which the USDA deems to be “rural”.  A rural area is one in which the population is 35,000 or less.  The USDA does not go by towns, it uses census tracts which can allow use of the RD program in part of a town but not the rest.  To know if the condo unit is in an eligible census tract, you can follow this link and click on the Single Family Housing link under Property Eligibility on the left of the page.

The RD program also has maximum income limits for its use and is a computation based on the number of dependents, disabled persons and persons aged 62+ that are living in the household.  The calculation also takes into account the county of the property, annual child care expenses and all income earned by adults in the home (not just the borrowers’ incomes).  You can use the link above and click Single Family Housing under Income Eligibility and use the worksheet to determine eligibility.

Unlike FHA and the VA, the USDA does not maintain its own approved condominiums list.  For a condominium unit to be eligible for RD financing, the project must be on the approved condominiums list of FHA, the VA, Fannie Mae or Freddie Mac.

Where this becomes interesting (at least to me) is when dealing with new construction projects.  FHA, the VA and Fannie/Freddie have different pre-sale requirements for new projects and their calculation.  FHA has the lowest pre-sale only requiring that 30% of the units be sold or pending sale.  Fannie/Freddie have a 50% pre-sale requirement and the VA says that 70% of the total number of units must be sold.

Therefore, for new construction in rural areas, it would make good sense to get approved with FHA to allow the use of the RD program as well.  The USDA does not have a maximum RD loan concentration limit; FHA caps its loan concentration in new projects to 50%.  Thus, after 30% of the units are sold, 50% can be financed with FHA and the rest with the RD program.  This is very important for developers to know when constructing in rural areas.

For more information about USDA’s requirements for condominium projects, you can access the Administrative Notice released by the USDA in 2007.  [The form does need some updating with regards to the pre-sale requirement.  The percentages that are listed above are accurate as of 4/17/15.]

Or you can contact Eric Boucher at

Top Photo Credit: (c) Can Stock Photo / imphot

Condo Unit Financing Almost Killed Due to Reserve Contribution

gstockstudioLast week a loan officer contacted me regarding a loan he had in  process.  At the 11th hour, the lender was rejecting the conventional (Fannie Mae) loan based on the association’s contribution to the reserve account.  According to the underwriter, the association was contributing less than 10% to the reserve account; the contribution was $6,400 short by their calculations.

He asked for my input.

After reviewing a copy of the budget, I wrote down some points for my friend to bring to the attention of the underwriter.

The first of which was that the underwriter was calculating the percentage using the total amount of annual income.  This included a line item called “Rollover from 2014”.  This is not actual income to the association; it is a transfer of equity funds from the operating account consisting of accumulated funds from previous years.  Thus, it should be removed from the calculation.

In addition, there was income listed from the rental of an office space and of storage units.  These are not common charges and should also be removed from the calculation.

There is a special assessment called a “Garage Fee” listed as income and an expense of the same amount labeled as “Garage Reserves”.  The underwriter was using the income in the calculation but was not including the expense towards Garage Reserves citing that those funds “spoken for”.

I posed that special assessment funds are not to be included in the calculation unless they are charges to specific unit owners that are common every year.  And, if the income is to be included, so should the Garage Reserves contribution because it is going into a fund that will pay for the replacement/repairs of the garages, aka, common elements.

After forwarding my rebuttal to the underwriter, my friend replied that the lender had done an “about-face” and approved the condo’s budget.

This loan almost didn’t happen because the underwriter was not completely familiar with Fannie Mae’s guidelines.  How many other loans have been errantly rejected for this same reason?

Top Photo Credit: (c) Can Stock Photo / gstockstudio

That’s Your Dog’s Poo – I Have the DNA to Prove It

pooprintsOver the weekend, we exhibited at the CAI New Jersey Conference and Expo.  There was a fantastic turnout and we met a lot of people.  The most interesting vendor that we met was Debbie Huff representing a company called Poo Prints.

A common issue in condominium communities is the amount of pet waste that is not picked up.  Poo Prints has devised a method for keeping unit owners with dogs “honest” in picking up their pet’s waste.

It does so by swabbing the dogs in the community to compile a database of their DNA.  Then, whenever waste is not picked up, a sample is taken and the DNA is tracked to the dog who left it and the unit owner is fined for not picking it up.

Debbie said that just swabbing the dogs results in roughly a 75% decrease in the amount of unretrieved waste.

If your community has a problem with dog poo, contact Debbie ( or visit the Poo Prints website.


How Many Community Associations Are in Your State?

kenhurst_300pxThe Community Associations Institute (CAI) publishes a report about the national statistics of community associations.  Among other data, it includes information about the national number of community associations, a rough number of community association managers and an estimated combined gross budgets of community associations.

A “community association” is either a planned community (or “PUD”), condominium or cooperative.  CAI estimates that 50%+ are planned communities, 45-48% are condominiums and 3-4% are cooperatives.  These are not easy figures to come by and that is why estimates are provided.

CAI estimates that there were 328,500 associations in the United States in which there were 26.3 million units housing roughly 65.7 million people.  This equates to around 24% of all homes in the US are in community associations.

According the report, Florida leads the pack with an estimated 46,000 associations, followed by California with 42,500 and then Texas with 18,400.  You may be surprised as to how many associations there are in your state.

Our tiny little state of Connecticut ranks at #22 with roughly 4,700 community associations.  In speaking with condominium attorneys in our state, they had estimated this number to be around 5,000-5,500.

Click here to view the report.


Photo Credit: (c) Can Stock Photo / kenhurst

What is the Difference Between a Condominium and a Townhouse?

ID-10036921I can answer this in one sentence: a condominium is declared a condominium.

Yes, it is really that simple but I have read several articles on this topic and all missed this very important aspect.  They have talked about building plans, owning the adjacent plot of land and homeowner’s associations but the bottom line is that in order for something to be called a condominium, it must be declared one.

Common Interest Communities

Common interest ownership means that the units have unit boundaries which the unit owners own exclusively and everything else (open areas, ponds, pool, tennis courts, roads, parking etc.) is collectively owned by all of the unit owners.

The areas outside of the unit boundaries are typically called common elements and are maintained collectively by all of the unit owners through a homeowner’s association (HOA).  The unit owners pay common charges which fund a budget to maintain the common elements and other aspects of the community.


porbitalA townhouse does not have to be a part of a common interest community.  Each townhouse owner owns the unit (interior and exterior and is responsible for the insurance and maintenance of both), the land in the front and back of the unit and the parking, if there is any.  In this case, there are no common elements and no community association.

This would be similar to a grouping of single-family homes that were smushed together from both sides to form one continuous building.  None of the owners have a financial obligation to the others.

Conversely, if a townhouse building is under a form of common interest ownership and it is not a condominium, it might be referred to as a planned community or PUD (the name varies amongst the states).  In this case, there would be a Homeowner’s Association that would pool funds for the maintenance and upkeep of the common elements.

If a townhouse building is under a form of common interest ownership and it is declared a condominium, then it is a condominium.


fotomineCondominiums are a form of common interest ownership as stated above.  The legal documents would specifically state that the community is a condominium.  There would be an HOA responsible for the insurance, maintenance and upkeep of the common elements.

I think it becomes confusing because condominiums can have townhouse-style­ buildings.  There can be 2-12 or more side-by-side units to a building.  The units can have 1, 2 or 3 floors each with or without basements and attics.  They look like townhouses, but they are condominiums.  Most of the condominium projects with whom I have worked have been of this style.

There are other styles of condominium units such as apartment-style (either low-rise or high-rise) and detached/site condominiums and pretty much anything in between.

To further complicate matters, the unit boundaries in the declaration dictate what each unit owner actually owns.  This is especially varied when it comes to townhouse-style units and detached units and is determined by the developer and the attorney who draft the declaration.

The boundaries can be set to include only that which exists “studs-in” from the basement floor to the inside of the rafters.  Or the boundaries can be set to be “studs-in” on the common walls and also include the exterior, the roof, the footprint of the unit, the front and back yards, a portion of the sidewalk, the parking spaces and so forth.

In the last example, the traits of this unit would be indistinguishable from a townhouse except that it is declared a condominium.

Planned Communities or PUDs

Planned communities are a form of common interest ownership like a condominium but not specifically declared as a condominium.  Planned Unit Developments or PUDs are a form of this.

This type of community would be similar to a condominium in that the units would have specific unit boundaries which may or may not include the exterior, land, driveway or parking.  It would have an HOA to maintain the common elements.

While planned communities typically consist of a grouping of detached dwellings, they can also be a grouping of attached townhouse-style buildings.  In my experience, this isn’t very common but they do exist.  These units could look identical to townhouses except they would be under a declaration of a planned community.

So How Will I Know the Difference?

The difference will be stated in the documents recorded at town/city hall.  When real property is part of a condominium or other deed-restricted community it must be filed at the town/city hall.  This gives public notice to the fact that the units are part of such a community.

The best way to find out if a townhouse is a condominium or part of a planned community is to review the title of the property.  To find out if the planned community is a condominium, the legal documents at town hall will specify this.

In any case, consulting with an attorney would be the best solution.  There are attorneys who specialize in common interest ownership and common interest communities.  They could easily provide you with accurate information.


Top image courtesy of Stuart Miles/
San Francisco image courtesy of porbital/
Bottom Photo Credit: (c) Can Stock Photo / fotomine

How Do I Know If I am Responsible to Fix Something?

stuartmiles (9)Condominiums and planned communities (and cooperatives) are forms of common interest ownership and when something breaks, leaks or malfunctions, there is commonly a question as to who is responsible for fixing it.  The answer to the question is “who owns it?”

The following is a discussion as to how to determine who owns it.  The short answer is to read the legal governing documents (aka Declaration) of the community.  If it’s not included in the unit boundaries, then it’s probably the HOA’s responsibility.

Reading the Declaration can be as much fun as reading a textbook of advanced physics and as tedious as figuring out Schrödinger’s Equation, well, for some of us. (Any physics majors out there?)

Common Interest Ownership refers to a form of ownership as part of a community whereby the unit owner owns a space within designated unit boundaries and owns an undivided interest in anything else within the boundaries of the community.  Everything within the boundaries of the community is broken up into units, common elements and limited common elements.

Unit Boundaries

The boundaries of a unit are specified in the declaration of the condominium.  This is what the unit owner owns exclusively.  The unit boundaries can vary greatly depending on the style of the unit and the whims of the developer.

Apartment-style Units

Units of this style would include those in a converted apartment building or in a high-rise, also known as a vertical condominium.  Vertical and horizontal planes would describe the boundaries of the unit and the owner would own that which is located within these boundaries.  The exception to this would be in cases where the mechanical features, such as electricity, plumbing or heating ducts, are limited common elements (see below).

Townhouse-style Units

Townhouse Style Unit

These units typically have more than one floor and share one or two common walls with other units.  This would look like a loaf of bread where the individual slices would represent separate units.

The boundaries of these units can vary from project to project but typically the vertical planes would “studs-in” and the horizontal planes would be the inside of the rafters and the basement floor.  This would mean that the unit owner does not own nor is responsible for the exterior of the unit including the roof, siding, windows, front steps, deck/patio or anything that is outside of these boundaries.  Limited common elements would also be excluded from ownership which could include the furnace, hot water heater, etc.

Where this can vary is if the developer sets the boundaries to include the exterior of the units.  Then the unit owner could own the roof, siding and windows and even a plot of land (front or back yard or both), the parking spaces and a detached garage.

Detached or Site Condominiums

These are free-standing units that otherwise resemble single-family homes but are under a declaration of condominium.  The boundaries here can vary widely as well.  As with townhouse-style units, the developer can set the boundaries to include or exclude the exterior, land, porch, deck, patio, front steps, driveway and parking spaces.

Common Elements

Common Elements are anything else that exists within the boundaries of the community but outside of the designated unit boundaries.  This can include the roads, sidewalks, open areas, wooded areas, gardens, pool, tennis court and recreational facilities.  Depending on the description of the unit boundaries, common elements may also include the land adjacent to, in front of and/or in back of the units; the exterior of the buildings; the roofs of the buildings; and the designated parking spots.

Every unit owner is a member of the homeowner’s association (HOA) and every member has an undivided interest in all of the common elements.  This also means that all members are allowed to use the common elements subject to certain rules and regulations as set forth by the legal documents.

The HOA, collectively, is responsible for the insurance, maintenance and upkeep of the common elements.  This is one of the primary responsibilities of the HOA.  The members of the HOA pay common charges which feeds a budget that pays for these expenses.

Detached/Site Unit

Limited Common Elements

Limited Common Elements are common elements but are restricted to the use of a particular unit owner.  These can include front steps, decks/patios, garages, parking spaces and other features that are reserved for the use of a particular unit owner.

Limited common elements can also include mechanical features such as duct work, plumbing, electrical wiring, furnaces, hot water heaters and air conditioners that service individual units.

Because these are common areas, they are collectively owned by all members of the association and the HOA is financially responsible for these elements, not the unit owners directly unless so stated in the legal documents.

How do I know if I am responsible for fixing something?

The best way is to refer to the declaration of condominium (or planned community) to determine whether or not you own it.  If you live in a townhouse-style unit and the furnace is not deemed a limited common element, it is probably your responsibility.

If you live in a townhouse-style unit and the unit boundaries include the windows and doors but not the siding and roof and your roof is leaking, chances are it’s the HOA’s responsibility.  If your window is broken in this scenario, it’s probably your responsibility.

If you believe that the malfunctioning feature is the responsibility of the HOA and have been told that they won’t fix it, I would recommend consulting an attorney.  There are attorneys who specialize in common interest ownership law in every state.

Upper image courtesy of Stuart Miles/