HOA Fees and Mortgages: How They Affect What You Can Borrow

Buying a condo or a home in a planned community often means paying homeowners association dues, commonly called HOA fees. Most buyers factor those fees into their monthly budget as a line item alongside their mortgage payment.

What most buyers don't realize is that HOA fees also affect the mortgage itself. They influence how much you qualify to borrow, they can change the loan programs available to you, and in some cases the HOA's financial health can determine whether a lender will finance the property at all.

Understanding how HOA fees and mortgage qualification interact before you make an offer saves you from some of the most frustrating surprises in the buying process.

Your debt-to-income ratio, or DTI, is the percentage of your gross monthly income that goes toward monthly debt obligations. Lenders use it to determine how much mortgage you can qualify for. The lower your DTI, the more purchasing power you have.

HOA fees are included in your front-end housing ratio, which is the portion of your DTI that covers housing costs only. When a lender calculates your proposed housing payment, they add your principal, interest, property taxes, homeowner's insurance, and HOA dues together. That combined figure is what gets compared against your gross monthly income.

This matters more than most buyers expect. A $400 per month HOA fee on a $7,000 monthly gross income consumes nearly 6% of your DTI before your mortgage principal, interest, taxes, and insurance are even factored in. That 6% has to come from somewhere in your qualification ceiling, which means you qualify for a smaller loan than you would on a property with no HOA.

The higher the HOA dues, the more they compress your qualifying loan amount. On a high-rise condo in Seattle or Bellevue with monthly dues of $700 to $1,000 or more, that compression can be significant.

For condo buyers, HOA fees are only part of the picture. The more consequential issue is whether the condo project itself is warrantable, which is a term that determines which loan programs are available to you.

A warrantable condo is one that meets the eligibility guidelines set by Fannie Mae and Freddie Mac for conventional financing, or the guidelines set by FHA and VA for government-backed loans. These guidelines evaluate the entire condominium project, not just the individual unit you're buying.

A non-warrantable condo is one that fails to meet those guidelines for any number of reasons. Non-warrantable projects require specialized financing, typically at higher rates with larger down payment requirements and fewer program options.

Fannie Mae, Freddie Mac, FHA, and VA each have their own specific criteria, but the most common reasons a condo project loses warrantable status include:

-- High investor concentration. If more than a certain percentage of units in the building are owned by investors rather than owner-occupants, the project fails conventional guidelines. Fannie Mae and Freddie Mac typically require that a majority of units be owner-occupied.

-- Single entity ownership. If one person or entity owns more than a specific percentage of total units in the project, the concentration creates risk that disqualifies the project.

-- Insufficient HOA reserves. Lenders and agencies require that the HOA maintain adequate financial reserves to fund future maintenance and repairs. An HOA with a low reserve fund relative to its budget is a red flag. A major repair assessment levied against all unit owners because the HOA didn't have reserves is a real scenario that lenders are trying to avoid funding into.

-- Pending litigation. If the HOA is involved in significant litigation, particularly involving the building structure or developer defects, most conventional lenders will decline to finance units in that project until the litigation resolves.

-- Commercial space concentration. Projects where a significant percentage of the building's square footage is commercial rather than residential can fail warrantability thresholds.

-- Short-term rental concentration. Buildings where a large percentage of units are operated as short-term rentals, such as Airbnb or VRBO, often fail conventional guidelines.

The most direct path is to ask the listing agent whether the project is currently approved for conventional or FHA financing. Many established condo buildings in Washington State maintain active FHA approval, which you can verify directly through HUD's condo approval database.

Your lender can also order a condo project review as part of the pre-approval process once you've identified a specific unit. This review evaluates the HOA documents, financials, meeting minutes, insurance, and project composition against current guidelines. It typically takes three to seven business days.

Starting this review early matters. Discovering that your target condo is non-warrantable after you're already under contract compresses your timeline and limits your financing options significantly.

LINK: Why getting fully pre-approved on a specific condo project before you make an offer protects you from warrantability surprises

If the condo you want is non-warrantable, conventional and standard FHA or VA financing are off the table. That doesn't necessarily mean you can't buy it, but your options narrow and the terms change.

Portfolio lenders, which are lenders who hold loans on their own books rather than selling them to Fannie Mae or Freddie Mac, can finance non-warrantable condos under their own internal guidelines. These loans typically require larger down payments, carry higher interest rates than conventional financing, and have stricter credit and reserve requirements.

Jumbo loan products from certain lenders also have internal programs for non-warrantable projects, particularly in higher-price markets like Seattle and the Eastside where condo values frequently exceed conforming limits.

The key is working with a broker who has access to portfolio and non-QM products rather than being limited to standard agency loan options. If you fall in love with a condo and the project is non-warrantable, the financing conversation is still worth having before you walk away.

Before you close on any HOA property, review the HOA documents. Your purchase contract gives you a review period specifically for this purpose in Washington State. The documents you receive will typically include the HOA's current budget, reserve study, meeting minutes from the past year or two, and any pending special assessments.

A special assessment is a one-time charge levied against all unit owners to fund a repair or project that the HOA's regular reserves couldn't cover. Upcoming special assessments can range from a few hundred dollars to tens of thousands depending on the project. They need to be disclosed, but buyers who don't read the documents miss them.

What you're looking for is an HOA that collects enough in dues to cover operating costs, maintains a funded reserve account that matches or exceeds the reserve study recommendations, has no significant pending litigation, and has no special assessments imminent that weren't disclosed upfront.

An underfunded HOA doesn't just affect your lender's willingness to finance the unit. It's a signal about the financial management of the building you're about to own a piece of.

LINK: How HOA dues factor into your DTI calculation and reduce your qualifying loan amount

When you're calculating what you can afford on a condo or HOA property, run your budget with the full PITI plus HOA payment from the beginning. Don't add the HOA fee as an afterthought after you've already settled on a price range based on a standalone home payment.

The practical move is to share the HOA dues amount with your lender before you start shopping in HOA communities so they can incorporate it into your pre-approval qualification correctly. A pre-approval built around accurate HOA figures tells you your real buying range, not an inflated one that shrinks the moment dues get added to the calculation.

Shopping for a condo or HOA property and want to know exactly what you qualify for with dues included? Schedule a free 15-minute call and we'll build an accurate number from the start.