When pre-qualifying someone for a condo mortgage a loan officer will have to make some assumptions since the potential home buyer does not have a ratified contract on a particular condominium. In those assumptions would be an estimate of what the monthly condominium association fees would be. I personally use $1.00 per thousand of the sales price when I am working up my numbers when prequalifying someone.
It is important for mortgage borrowers to realize how the condominium fee of a particular unit that they may be interested in can affect their prequalification numbers. If they were looking at a condominium that has an association fee that is higher than my arbitrary estimate it would push their mortgage prequalification numbers down. If they are looking at a condominium that has an association fee that is lower than what I used as an arbitrary estimate they could borrow more on their mortgage that I initially prequalified them for.
Below is an example.
My assumptions during pre-qualification:
$500,000 maximum purchase price
$400,000 mortgage prequalification
20% down payment
$400 monthly association fee assumed
Potential purchase a mortgage borrower is considering:
$520,000 purchase price on condominium unit the buyer is interested in
$416,000 mortgage needed
20% down payment
$300 monthly actual association fee
In this case reducing the monthly condominium fee by $100 easily makes up the request for an additional $16,000 in mortgage. But if this particular hypothetical mortgage borrower were looking at a $520,000 purchase price and a $416,000 mortgage with a condo fee of $500 a month, the numbers would not work.
I had a client that I had prequalified for a maximum of a $500,000 mortgage with a $625,000 purchase price and a 20% down payment. I assumed a condominium fee of $625 a month. The very first unit that they found during house hunting that they really liked had a condo fee of over $1000 a month and an asking price of $600,000! It was a full service building, with a 24-hour front desk, a rooftop pool, and a large gym; so the condo fee covered quite a few amenities. Although they really liked this particular unit, they could come nowhere near qualifying for the necessary mortgage because of the large condo fee.
The moral of the story is that when looking at condominiums, even after getting prequalified, you’re going to have to be careful before making an offer and speak to your mortgage loan officer to make sure you are on solid ground with the particular unit you are looking at. The same thing goes for property taxes, as well as interest-rates. Prequalification numbers are an arbitrary estimate and they will have some level of fluctuation that you always need to research before making an offer.