What is the Condo Questionnaire?
If you are buying a condo with a mortgage, you will likely be paying for a condo questionnaire as part of your closing costs. Your lender will need to send a questionnaire to the management company, or condo board, with specific questions that will disclose the stability of the association. The questionnaire contains questions that will validate if the condo is "warrantable". Being "warrantable" means that the loan is able to be sold on the secondary market.
Some of the questions will relate to some items such as; major repairs in the complex, outstanding code or ordinance violations, sufficient funds in place for reserves, any current special assessments, any current litigation, how many units are being rented out, non-occupant owners versus owner occupied units, is there new construction still not completed, are there too many owners delinquent with their association dues.
What can happen?
Sometimes the results of the questionnaire come back very late in the transaction. It may not always be ordered early in the transaction, or it may take weeks to get returned from the association or the management company. By this time, a buyer has likely paid for a home inspection and an appraisal. The answered questions could result in the transaction being cancelled if it is determined that a condo is "non-warrantable", and the buyer has no other option to purchase it. If the lender does not offer "non-warrantable" loans, the buyer may have to find another lender that does offer them. Is the seller going to wait for the loan process to start all over? Another risk is that the buyer may not even be able to qualify for a "non-warrantable" loan. These loans sometime require a higher down payment or a higher interest rate because they can be a riskier loan. Another option would be a portfolio type loan to keep the loan in house (if the lender offers that). Purchasing the condo with cash could also be another solution.
This questionnaire is an added cost to your buyer closing costs. The price can vary because it is set by the association or the management company for that condo complex. The cost could run a few hundred dollars. The lender may ask for the payment up front, or pay for the questionnaire and charge you the fee at closing (a risk for them if your loan doesn't close).
Can a "non-warrantable" condo be anticipated?
This is not always easily detectible. If you see the recent sales in a complex have all been cash, that might be a sign that a mortgage might not be so easy for this complex. Something may have just happened in the complex to cause it to be "non-warrantable" as well. A seller may not even be aware that their complex is a "non-warrantable" complex. If you ask the association or management company if the complex is warrantable, most won't be able to give you a good answer. It all depends on all of the answers on the questionnaire.
My only suggestion is to have the condo questionnaire ordered as soon as possible and have a back up plan.