Selling a Condo With HOA Issues? Here’s the Hidden Risk Most Sellers Don’t See
Selling a condo with HOA issues can derail even the strongest offer — not because of the buyer, but because of the condo complex itself.
Most sellers (and many agents) don’t realize this:
Sellers don’t get to choose the loan type — the condo complex does.
The financing your buyer can or cannot use depends almost entirely on the HOA’s financial health, documentation, and risk profile. If something is wrong behind the scenes, the lender may deny financing even if the buyer is perfectly qualified.
And this can kill your deal days before closing.
This guide breaks down exactly what HOA issues lenders look for, how they impact your sale, and — most importantly — what to do next to protect your escrow.
⭐ Why HOA Issues Matter When Selling a Condo
When a buyer’s lender reviews a condo, they’re not just underwriting the borrower — they’re underwriting the entire project.
This means they evaluate:
HOA financials
Reserve contributions
Insurance coverage
Owner-occupancy ratios
Delinquencies
Pending or past litigation
Structural or deferred maintenance problems
The ability of the HOA to provide required documents quickly
If something looks risky or unclear, lenders may:
Stall the loan
Change the buyer’s financing type
Require a different down payment
Or deny the loan altogether
That’s why selling a condo with HOA issues requires strategy — and early visibility.
🚨 Common HOA Red Flags That Can Kill Financing
These are the problems that trigger financing issues across FHA, Conventional, and Non-QM lenders:
1. Insufficient Reserve Funds
If the HOA is underfunded, lenders fear future special assessments.
2. High Number of Investor-Owned or Renter-Occupied Units
Too many rentals makes the complex riskier to lenders.
3. Active or Pending Litigation
Any lawsuit involving the HOA is an immediate red flag — especially structural, construction defect, or insurance-related cases.
4. Delinquent HOA Dues
If too many owners are behind on dues, it signals potential financial instability.
5. Master Insurance Problems
Expired policies, inadequate coverage, special exclusions, or policies that don’t meet lender requirements.
6. Deferred Maintenance or Safety Concerns
Since the Surfside tragedy, lenders aggressively scrutinize structural safety, inspection reports, and maintenance obligations.
7. HOA Fails to Provide Required Documents
Slow or uncooperative HOAs stall escrow and can cause financing deadlines to be missed.
These issues often only appear when the lender questionnaire or master insurance documents are reviewed — which usually doesn’t happen until you’re already in escrow.
🧭 Loan Type Breakdowns
FHA Loans: When Are They Possible?
FHA financing is allowed for condos, but only when the project meets FHA’s criteria. This happens in one of two ways:
1. The condo complex is FHA-approved
This is the simplest path — the project is already listed on HUD’s FHA-approved roster.
2. The buyer obtains a Single-Unit Approval
This allows an FHA buyer to purchase a unit in a non-approved complex if the HOA provides documents and the project meets FHA standards.
If the HOA does not cooperate or fails FHA guidelines, FHA financing will not work.
Conventional Loans: Warrantable vs. Non-Warrantable
Conventional (Fannie Mae/Freddie Mac) financing is binary with condos.
If the complex meets Fannie/Freddie project standards → It’s warrantable.
This means:
Standard conforming financing is allowed
Best pricing
Lower down payment options
AUS-approved simplicity
If the complex fails warrantability → It’s NON-warrantable.
This happens with issues like:
Litigation
Low reserves
Insurance gaps
High rental ratios
Significant deferred maintenance
When that happens:
Standard conforming loans are not allowed
The loan must be restructured into a program that accepts non-warrantable condos
Down payments and rates increase
Fewer lenders will participate
This is where having a broker with many lenders matters — not all lenders treat warrantability the same.
Non-QM Loans: A Case-by-Case Solution
Non-QM is not a “last resort” — it’s simply another lane of financing with more flexible rules. But it’s not universal.
What Non-QM Can Help With:
Non-warrantable condos (depending on investor)
Complex income (bank statements, P&L, asset-based, etc.)
Buyers who don’t fit traditional guidelines
Important Realities:
Not all Non-QM lenders lend on non-warrantable condos
Guidelines vary dramatically
Rates are higher
Down payments are typically 20–30%+
Some investors require full HOA docs; others require minimal documentation
Non-QM can save a deal when you’re selling a condo with HOA issues — but only with the right lender match and early visibility into HOA risk.
💡 What to Do Before Listing a Condo With Potential HOA Issues
Here’s how to protect your listing and your escrow:
1. Get the HOA documents upfront
Budget
Year-end financials
Reserve study
Master insurance
Litigation statements
Rental ratios
Delinquency report
2. Have a lender review the documents BEFORE you list
This is where I help sellers and agents the most.
My team reviews the same items the buyer’s lender will scrutinize and tell you:
What financing the condo qualifies for
What issues may come up in underwriting
Whether the condo is warrantable or non-warrantable
What loan options will (and won’t) work
What to prepare or disclose in advance
This prevents you from accepting an offer that cannot close.
3. Position the condo correctly in the MLS
You’re less likely to attract FHA buyers, for example, if the project is known to fail FHA guidelines.
4. Prepare a simple “Financing Readiness Packet” for buyers’ agents
This builds confidence and reduces surprises.
🔧 What I Can Review For You (Free)
Whether you’re a seller or Realtor:
HOA docs
Master insurance
Seller questionnaire
Lender questionnaire
Budget + reserves
Litigation summary
Rental ratios
Owner-occupancy
Warrantability
Financing type eligibility
This protects your escrow from preventable financing surprises.
🎯 Final Thoughts: Selling a Condo With HOA Issues Is All About Preparation
Most condo deals fail because the HOA documents weren’t reviewed early enough.
If you’re selling a condo with HOA issues, the safest approach is:
Know the risks early. Control the narrative. And structure the deal around financing that will actually close.
📞 Need a Second Pair of Eyes?
If you’d like a detailed review of your condo’s HOA docs — or you want to know which financing types your complex qualifies for — I’m always happy to help.
My goal is simple:
Keep your deals clean, predictable, and drama-free.
