Should I Expect Cash Only Terms when Buying a Condominium?

Steve BushStarred Page By Steve Bush, 13th Aug 2014 | Follow this author | RSS Feed
Posted in Wikinut>Money>Property

Buying a condominium can involve some unusual financing difficulties. Be particularly alert to the condition of the homeowners association (HOA).

Questions to Ask Before Buying a Condo

Several new potential problems and risks involving condominiums have emerged in recent years. I have devoted 25 years of my professional life to solving real estate problems. Despite my background as a real estate expert, I cannot offer any quick fixes for many of the condo risk issues. The best that I can do is to highlight some key condominium questions to ask. In particular, condo buyers should be alert whenever they hear that "cash only" terms are required.

It is increasingly common to hear "cash only" for purchase requirements involving condominiums. While sales might involve an auction process, traditional real estate transactions for condos can also require a 100 percent cash payment. For any condominium purchase, prospective buyers should ask these questions:

• If "cash only" terms are required, why?
• When is the cash payment due?
• Are major repairs required for the condo or shared parts of the property?
• Is the condo being sold due to foreclosure?
• Are any banks offering traditional mortgage loan terms?
• Is Federal Housing Administration (FHA) financing available?
• What percentage of the condominiums are occupied by owners?
• How many units are empty or unsold?
• Are there unfinished units?
• What is the financial condition of the homeowners association?

Homeowners Association (HOA) for Condominiums

Condominium purchasers should review the HOA's financial condition and the payments required from condo owners. After buying a condo, owners are required to join the homeowners association responsible for the shared portion of the property. The money to maintain common facilities comes from regular homeowner dues and special assessments.

Here is a short video that provides some useful insights about potential problems to anticipate with an HOA for condominiums:

The Real Estate Auction Process

Many condos are sold at auctions. It is customary for winning bidders to provide an earnest money cash deposit or an equivalent such as a cashier's check at the time of their successful bid. While some auctions involve foreclosed properties, real estate auctions are also used as an alternative sales method by property owners. Condominiums sold in this manner might be offered on a "cash only" basis because they are unfinished or need repairs.

Before attempting to buy a condo through an auction, buyers should become familiar with what is required. Each governmental jurisdiction has different financial requirements about when payment is due for a condo purchased at an auction. Some states such as Arizona require an advance cash deposit prior to the auction and the balance in cash or cashier's check by the next business day after the auction. California and some other states require full payment immediately after a winning auction bid.

Limited Availability of Condo Financing

Two of the primary reasons that many sellers of condos require "cash only" for purchases are related to buyer difficulties in obtaining "traditional" bank financing. Some homeowners associations for condos are financially insolvent, and most lenders will not provide condominium financing in such cases. Another situation in which "cash only" might be required is when a traditional mortgage is unlikely because the individual condo or a common facility maintained by the HOA is in need of significant repairs.

The Federal Housing Administration has tightened restrictions for getting traditional mortgage financing for condo purchases. Some of the reasons include the following:

• Condo builders subject to pending litigation.
• Homeowners association insolvent or in poor financial condition.
• Condominium projects less than 50 percent owner-occupied.
• Projects incomplete due to lack of builder financing.

Practical Alternatives to Cash Only

Many terms are negotiable when buying real estate, and a requirement for "cash only" might be subject to negotiation. For most condominiums being sold at auctions, some variation of "cash only" terms should be anticipated. However, a cash condo purchase is not the only available method for buying condominiums. Traditional real estate financing is often available for condos that are in good condition and have a homeowners association in sound financial shape. It is also common to find condominiums available for leasing with an option to buy the condo at a later time.

Closing Thoughts and Questions About Condos for Homeowners and Investors

Some of the most difficult real estate problem areas that I have worked with during the last three decades involve financing. Even if a condominium buyer is capable of buying the property without a mortgage, the lack of traditional financing should serve as a warning sign about other unanswered questions. For example, how easily will I be able to sell the condo?


Buying Condominiums, Buying Real Estate, Cash Only Condos, Condo Homeowners Associations

Meet the author

author avatar Steve Bush
Steve Bush is a business finance consultant and writer. He served in the military as an officer in the U.S. Navy Supply Corps. Bush obtained an MBA at the University of California, Los Angeles.

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