Arizona Condo and Townhouse Buying Tips

There are some issues for buyers of condos, townhouses, or “apt-to-condo conversions” units in Arizona to be aware of that are different than if a buyer purchases a detached single family home.

  • Lenders require that at least 51% of the owners in the complex reside in their units, and are not renting them out, before they will make a loan on a unit.
  • Lenders will not lend if more than 10% of the units are owned by a single person/investor.
  • Lenders will check to see if there is any litigation going on, or unresolved with the complex. If there is litigation, lenders will not lend on the property.
  • FHA loans can present some added challenges. In a different economy a unit in a condo complex could get “spot approval” if the buyer was trying to get an FHA loan. But these days are in the past. If the entire complex is not approved for FHA and the buyer is planning to use FHA to get a loan, then they will not get a loan and should move on to look at other properties.
  • If a buyer plans to use FHA to get a loan, only 30% or less of the units in the complex can already have FHA loans. For any units more than 30% needing a loan and the buyer will not be able to get a FHA loan.
  • If a buyer is  looking at a developer’s complex where they are just starting to sell units, FHA will not lend until at least 50% of the units are already sold in the complex. Fannie Mae and Freddie Mac require at least 70% of the units to be sold before they will lend on a unit in the complex.
  • If the condo project is an “apartment-to-condo conversion” project there will be special forms and criteria that have to be met before a lender will lend on this type of project – be it a FHA or a conventional loan.
  • Bear in mind that the management groups of some condo complexes will not verify ownership. This is because many unit owners end up buying under LLCs or trusts and it becomes impossible for the condo /HOA management group to be able to verify ownership with certainty. If they cannot verify with certainty there is liability for the management group and therefore they will not verify. If a condo/HOA management group will not verify all the requirements that a lender needs to the lender’s satisfaction then there is no lender who will be able to make a loan on the units.
  • Most condo complexes have a number of amenities, such as pools, fitness centers, tennis courts or other amenities. Bear in mind that these amenities are supported by the monthly Home Owner Association (HOA) fees. If there are a significant number of units in a complex who end up in foreclosure, there will be a reduced number of owners paying the HOA fees. The result will either be a higher monthly HOA assessment that the existing owners will be required to pay in order to keep the amenities going and the property in good repair – or without enough funding, the property will end up falling in disrepair and the amenities will not be supported. For example a condo owner who thinks they will be paying $250.00 monthly for HOA fees could end up seeing their monthly fees shoot up to a monthly $500.00 overnight just to keep the pool heated and the grounds maintained if a significant number of condo units fall into foreclosure.

What all this means is that condo/townhouse/apt-to condo type units in a poor economy are a difficult property for anyone to buy who is not paying cash. If you are a cash buyer, obviously these loan issues will not apply to you, but you should still be aware of the fact that the HOA monthly fees can be subject to elevate overnight if a significant number of units in the complex end up in foreclosure, or without enough fees to support the amenities and infrastructure of the complex, the amenities will fail to exist in the same manner they were when you purchased your unit. Also if there are significant repairs that have to be made to the complex and there are many foreclosed properties and there is not enough money in the condo/HOA reserve fund, then the existing owners will have to dig deeper into their pockets for money to handle the repairs with a special assessment.

If buying a condo/townhouse/”apt-to-condo conversion” go into the purchase with both eyes open regarding these issues. And if your plans include getting a loan, your inventory selection of possibilities may be very limited.


(These lending rules are subject to change at any given time, based on market conditions. A buyer should check with an Arizona licensed lender for the latest updates on all financial topics. If you need a top quality lender to help you we can provide some referrals.)

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