After months of searching Ocean City MD real estate for sale, planning options with your real estate agent, and touring dozens of properties, you’re ready to make an offer. If you don’t have the option of making an all cash offer, you’ll need to contact a mortgage lender.

When buying a condo, most buyers are not aware that in order to get a mortgage in a condo building, the condo association has to qualify – not just the buyer.

You’ll need to know what you’ll need to look out for – So, you don’t fall victim to a failed or severely delayed closing when buying a condo in Ocean City, MD.

5 Reasons Buying a Condo May Fail Due to the Condo Association

The condo resale package provides you will critical information about the condo association. In this article, I’ll cover 5 common reasons your mortgage loan when buying a condo.

For most mortgage loan products, a condo building must be deemed “warrantable” in order for a buyer to buy a condo in that building.

#1) Inadequate reserves

It's important for condo associations to save money just as a buyer needs to budget savings to buy a home.

The association may be required to show a current budget that allocating at least 10% of its annual association Dues to Reserves. This is essentially the association’s savings for major repairs and maintenance over time.

An association that is not saving at least 10% annually is not likely to have accumulated enough to cover these repairs (such as a new roof) when needed and will have to charge the owners to cover it. Unexpected charges to owners mean more risk to banks holding mortgages in the property.

#2) Existing litigation by or against the condo association

Existing litigation by or against the association can prevent a condo sale. Lawsuits filed for construction defects are particularly problematic because they indicate serious repair issues that could be extremely expensive for an owner.

#3) High single entity concentration

A mortgage loan product could be rejected if a single owner or investor owns more than 10% of the total number of units in the association.

#4) Excessive delinquencies

Non-paying neighbors are a red flag for obvious reasons – and buyers should pay attention to this item. When owners are not paying their dues, the association can’t pay its operating expenses and fees increase for the paying owners.

If too many owners are behind on their dues, it can also make it difficult for their neighbors to sell. Condo owners not paying association dues could end up in a foreclosure sale. This could create more problems for condo ownership.

Often, owners that are unable to pay their dues or mortgage payments, tend to stop maintaining of their home or condo.

#5) Too much commercial space

Many condo buildings are developed with retail or office space on the ground floor. A prime example are condo buildings located on the Ocean City, MD boardwalk.

Many OC boardwalk condo buildings have retail spaces on the ground level. Some have first or second floor restaurant spaces. Don't be alarmed! Most condo buildings in Ocean City are properly portioned with commercial and residential space.

Developers can sell the residential real estate above and continue to profit from leasing the commercial space. This is good for the developer, but it can be bad for the residential owners if there is too much commercial space.

Excessive commercial square footage can cause a mortgage to be denied by a mortgage lender, depending on lender guidelines.

Best practices for buying a condo

It’s beneficial to be aware of the pitfalls you could encounter before making an offer.You’ll want to find out as much as you can about the association before you sign a contract to buy a condo that you may never be able to call home.

Don't search real estate & homes for sale alone.

It may seen simple enough, but there are negatives. Instead, work closely with a Ocean City, MD Realtor®, which will help you save time and will benefit your home search. 

Work with a lender familiar with condo financing.

Many local mortgage lenders are familiar with condominium buildings in the Ocean City area, and have pre-reviewed many of the condo buildings. If you’re interested in a particular unit, you could save time talk to a lender that has already encountered a review of the associations resale package.

Reviewing the condo resale package in Maryland

You’ll be able to review details on the association after your offer is accepted. In Maryland, the seller of a condo unit is required to provide a condominium resale package to the buyer no later than 15 days prior to closing. After reviewing the resale package you have the right to rescind (or cancel) your offer to buy the condo unit.

In addition to reviewing the extra expenses with condo ownership, you’ll need to consider these common issues with the association.

Author's Note: This blog article was originally published in March 2016 by Michael Nolen on DelmarvaHomeRelief.com and has been completely revamped for accuracy and comprehensiveness.