The Lender's Guide to HOA Documents and Condo Approvals

Why Lenders Need HOA Documents

You're not just underwriting a borrower when the property sits in an HOA community. You're underwriting the association too.

Think about it. An HOA that's behind on its bills, underinsured, or burning through reserves is a direct threat to your collateral. A condo association tangled up in litigation, running a delinquency rate above 15%, carrying insurance that wouldn't cover a bad storm? That's a lousy place to hold a mortgage.

HOA documents are how you size up that risk. For conventional loans, Fannie Mae and Freddie Mac spell out exactly what you need to review and what thresholds the project has to clear.

The Core Documents

Condo Questionnaire

The condo questionnaire is the single most important document for lender underwriting. The condo questionnaire (Fannie Mae Form 1076 for full review, Form 1077 for limited review) gives you a structured set of data points about the project.

What the questionnaire covers:

• •Total number of units and percentage sold
• •Owner-occupancy ratio
• •Assessment amounts and delinquency rates
• •Budget allocation and reserve funding
• •Insurance coverage details
• •Pending or anticipated litigation
• •Commercial space percentage
• •Single-entity ownership concentration

The HOA's management company fills this out. It requires specific, verifiable data. Not estimates. Not ballpark numbers.

Financial Statements

Current financial statements, ideally audited or reviewed by a CPA, tell you how the association handles its money. You're looking at whether revenue covers expenses, what percentage of the budget goes to reserves, how much in assessments is past due, and whether any special assessments have been approved or proposed.

For larger projects (150+ units), Fannie Mae requires an audited financial statement. Smaller projects can sometimes get by with a management-prepared statement.

Insurance Certificate

The HOA's master insurance policy has to meet minimum coverage requirements for conventional lending. You need to verify:

• •Hazard/property coverage at 100% replacement cost of the insurable improvements, minimum
• •General liability of at least $1 million per occurrence
• •Fidelity bond coverage equal to at least 3 months of assessments plus reserves
• •Flood insurance if any insured building sits in a FEMA flood zone

Get the actual certificate of insurance. Not a verbal confirmation. Not a summary someone emailed over. Check the effective dates, coverage limits, and named insured yourself.

Reserve Study

A reserve study (or at least a reserve fund summary) shows whether the association is putting enough away to cover future capital expenses. Roof replacements, elevator modernization, parking lot repaving, HVAC system overhauls, these things cost real money, and the reserves should be building toward them.

Fannie Mae doesn't mandate a specific reserve funding percentage, but underwriters treat it as a major risk indicator. A project funded below 20% is going to get extra scrutiny or need compensating factors to get through.

Fannie Mae Full Review Requirements

A full project review is required for most condo purchase transactions. Here's what Fannie Mae needs:

Eligibility criteria:

• •At least 50% of units must be owner-occupied or second homes, not investor-owned
• •No more than 15% of unit owners can be 60+ days delinquent on assessments
• •No single entity can own more than 20% of units (10% for projects with fewer than 20 units)
• •Commercial space can't exceed 35% of total project square footage (25% for two-to-four unit projects)
• •No pending litigation that would affect the safety, structural soundness, or habitability of the project
• •Adequate insurance coverage per the guidelines above
• •The project must be complete, with no ongoing construction or phasing (limited exceptions exist)

Required documentation:

• •Completed condo questionnaire (Form 1076)
• •Current year's budget
• •Most recent financial statement
• •Certificate of insurance
• •Master deed or declaration (if requested)

Fannie Mae Limited Review

A limited review applies to certain refinances, second homes, and investment properties. The bar is lower:

• •Completed limited review questionnaire (Form 1077)
• •Fewer financial documentation requirements
• •Less scrutiny on owner-occupancy ratios

But don't confuse "limited" with "optional." The lender still has to verify the project meets basic eligibility criteria, including insurance and litigation status. I've seen people get burned assuming a limited review was a rubber stamp. It isn't.

PERS: The Exception Path

When a project doesn't meet standard eligibility criteria, Fannie Mae's Project Eligibility Review Service (PERS) offers a manual review path. You'll see this come up with:

• •New construction projects not yet fully sold
• •Projects with more commercial space than the guidelines allow
• •Projects with ongoing litigation
• •Projects where owner-occupancy falls below 50%

PERS reviews take longer, typically 2-4 weeks, and require more documentation. They're also not guaranteed to result in approval. But for projects that fall outside standard guidelines, PERS may be the only way to get a conventional loan done.

FHA Requirements

FHA loans have their own separate approval process for condos. The project must be on the FHA-approved list or receive a Single-Unit Approval (SUA).

FHA project approval requires:

• •Owner-occupancy rate of at least 50%
• •No more than 50% FHA-insured concentration
• •Adequate insurance
• •No more than 15% delinquency
• •At least 10% of the budget allocated to reserves

FHA maintains a searchable database of approved projects at hud.gov. If the project isn't on the list, the buyer either needs to pursue SUA or switch to a conventional loan. This rarely comes up early in the process, and it causes problems at the worst possible time.

Common Underwriting Issues

Delinquency over 15%. This is the most frequent deal-killer I see. The 15% threshold applies to the number of units 60+ days past due. During economic downturns or in communities with heavy investor ownership, delinquency rates can blow right past this level.

Insufficient insurance. Fidelity bond coverage is the usual culprit. Smaller associations sometimes skip it or carry too little. If the bond amount falls below the Fannie Mae requirement, the association needs to increase coverage before the loan can close. Getting the board to act quickly on a coverage change is its own challenge.

Litigation. Not all litigation kills a deal. A slip-and-fall claim is a completely different animal from a construction defect lawsuit. The underwriter needs to evaluate the nature of the claim, the potential cost, and whether insurance covers it.

Budget deficits. An association spending more than it collects raises real questions about future assessment increases or special assessments. Both of those hit the borrower's ability to pay, and underwriters know it.

Timing and Workflow

For lenders, the HOA document review often sits right on the critical path. A few things help keep it from blowing up your timeline:

1. 1.Order the condo questionnaire at loan application. Don't wait for the appraisal or credit decision. Just order it.
2. 2.Set expectations with the loan officer. Condo questionnaires take 5-15 business days. Factor this into your rate lock and closing timeline or you'll be scrambling.
3. 3.Review documents as they arrive. Don't sit on them until the full file is assembled. Flag issues early so there's actually time to fix them.
4. 4.Build relationships with management companies. Repeat business creates goodwill and can get you faster turnaround. This matters more than people think.
5. 5.Have a plan for ineligible projects. If the project doesn't meet standard guidelines, know your PERS and SUA options before the borrower is counting on a closing date.

HOA documents aren't a formality, they directly affect the risk profile of the loan. Treat them with the same rigor you'd apply to the borrower's credit file or the appraisal. Skip this step, and you're the one holding the bag when something goes wrong.