Arizona Condo Purchase Simplified

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If you don’t take “no” for an answer, this story is for you!  In fact, you might just have what it takes to stomach an Arizona condo purchase.  Obtaining a mortgage on an Arizona condo involves more than getting a mortgage on any other type of residential property.  Condo home loans require the entire condo project/HOA be scrutinized for financing eligibility.  Condo property approval requirements differ based on:

  • loan type being used
  • the occupancy of the borrower
  • the type of condo/project
  • the percentage of completion of the project
  • the borrower’s down payment

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An Arizona Lender can hinder a buyer’s ability to finance a condo by not knowing condo home loan guidelines inside and out.  For example, the misinterpretation of one simple Conventional condo financing question can end a condo financing transaction.  That question – “does a single entity own more than 10% of the units in the project?”

Does One Entity Own More Than 10%?

This is where our story begins.  A client of ours was financing condo in a condo project in Scottsdale, Arizona.  Based on the fact our client was going to rent the condo out, the Condo project/HOA was subject to a full project review.  Part of a full project review involves the buyer’s mortgage lender determining if one entity owns more than 10% of the units in the subject condo project. When the answer is “yes” the deal is dead (when the condo is a rental purchase).  On a second home or primary residence condo purchase an answer of “yes” is not necessarily the end.

The HOA for this particular project reported to us that “yesone entity owned more than 10% of the units in this project.  Well, shoot dead deal right?  Wrong!

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Take a 2nd Look at Every Answer

The form that the “one owner owning more than 10%” question is answered on is 6 pages long.  It contains several answers to other important condo related questions.  In addition to answers, it contains clues if you look closely.  In this case, the form also stated that the “declarant” (the developer) owned more than one unit.  To steal a phrase from Despicable Me – “Light Bulb.”

This is where the fine print in the Conventional Condo Mortgage regs handbook comes in handy.  The rules state that if the developer of the subject condo project owns units that meet the following criteria those particular units do NOT need to be counted into the “one owner owns 10%” calculation:

  1. Vacant/not rented
  2. Currently marketed for sale

We approached the company the HOA management company and requested a letter elaborating on:

  1. How many units the investor owns
  2. How many are vacant?
  3. Number of condo units listed for sale?”

This is where a strong stomach comes into play.  HOA management companies are not always helpful providing lenders more than the bare minimum.  In fact, a “take it or leave it” attitude is quite  common.  In our case and after several requests, the HOA refused to provide anything additional.  The standard “yes one owner owns more than 10%” answer  was all we got.

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Time to get resourceful

We now had confirmed the 10% calculation may not be correct and we had an uncooperative HOA.  Now we needed a different way to document this condo project’s eligibility.  Here is what we did.

The buyer’s agent shared the listings for every condo currently for sale in this condo project.  We also determined the only entity owning more than one unit was in fact the developer.  By combining both the listings and the deed research we found that we were on to something!

The project had 95 condos total.  The investor owned 13 units.  12 of the investor’s units were vacant & listed for sale.  After subtracting the developer owned, vacant and listed for sale units the number of units owned by one entity was now under 10%.  This condo was eligible for financing.  At first glance, the condo project appeared ineligible for financing. However, after digging deeper the project was eligible for Conventional financing.

By Jeremy House


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