Did you know that over 20 percent of homes are part of some sort of CIC (Common Interest Community)? The most common form of CIC is a condominium, but some townhomes and some single family developments are also part of a CIC with covenants and fees.
When you make an offer on a property that is part of a CIC, Minnesota state law requires that the seller provide you with the governing documents and financials of the association. You have 10 calendar days to review these documents and can cancel your agreement at any time during this period with no penalties.
Here are some things to watch for…
HOUSES
- Newer developments with brick sign markers and plantings at the entrance are often part of a CIC… this is a sign to ask about it if it is not indicated in the listing
- Fees primarily cover the cost of maintenance of the entrance gate and any other common areas such as playgrounds
- They may have covenants about the color you can paint your home, exterior brick or stone requirements, all vehicles must be parked in the garage, fencing restrictions, no sheds, etc…. ask so there are no surprises
TOWNHOUSES
- Townhomes with Lot and Block legal descriptions are usually treated the same as a house for financing and do not have to follow FHA townhouse approval guidelines
- If the legal description is CIC, financing requirements are usually the same as for condominiums
FHA/VA FINANCING REQUIREMENTS
- Legal CIC communities must be on the list of developments approved for FHA financing to obtain an FHA mortgage
- For a VA mortgage it must be on the list of developments approved for DVA financing
- MLS listings indicate whether a property is approved for FHA or DVA financing, but they are not always accurate
- In our market, the information is submitted by the agent who may have obtained it from the seller who doesn’t have accurate information
- The property may have previously been approved for FHA or VA financing but has since lost its approval status
- There are separate lists for FHA and VA approved condos
MISCELLANEOUS
- If you plan to have a mortgage, your maximum monthly payment must include not only principal, interest, and taxes but also association fees and association blanket policy insurance for the building, and HO6 homeowner’s insurance for your unit
- Most lenders require 10% of the annual association budget in to be held in reserves
- Lenders usually don’t want more than 25% of the units to be rented
- If one investor owns multiple rental properties in the same association it can cause financing issues with some lenders
- Any form of litigation with the association can cause cause a problem with financing approval
- If amenities are shared with another association it can potentially raise red flags with underwriting
- Look for a repair/replacement plan for maintenance of the building and common areas
- Is the complex self-managed or does it hire a professional management company? Does it make a difference to you? If self-managed, is it is stable condition?
PERSONAL
- Check pet rules
- Obviously, look for requirements if you own or plan to own a pet
- Also be aware if you don’t have pets of your own… would it bother you to have a dog or other pets next door?
- Do rental restrictions fit your needs? If work or family takes you away for an extended period of time would you want to rent your unit? If so, is this allowed?
- Are amenities things you appreciate and would use? Is something missing from your ‘must have’ list?
- Is the association flexible to allow variances in rules and regulations? Would this be a positive or negative for you?
- Is current maintenance of the complex and common areas acceptable to you?
RE/MAX Results HomesMSP Team – info@homesmsp.com
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