Let's follow a family looking for a condo in Austin with a budget of $400,000. They found a property they liked and proceeded with the contract, but during the loan approval process, the bank notified them that the building was excluded from the approval list. While there was nothing wrong with the property itself, the reason was that the overall HOA financial status of the building did not meet the criteria.

The median monthly HOA fee for condos in Austin is around $400 (according to hoacosts.com). Downtown condos vary widely from $200 to $1,000 per month depending on size and service level, and luxury high-rise buildings with 24-hour concierge services and fitness centers can exceed $1,500 per month (according to movetoaustintexas.com and Spyglass Realty). Austin has seen a rapid increase in new condos in recent years, leading to significant differences in management fees even within the same downtown area based on the age of the building and amenities.

Returning to the issue this family faced, mortgage lenders do not only consider the buyer's personal credit when evaluating condo purchases. They also assess the HOA's delinquency rate, reserve fund ratio, ongoing lawsuits, and the proportion of commercial space. If these criteria are not met, the property is classified as a non-warrantable condo, which means the buyer may have to find a loan product with stricter conditions or reconsider the contract altogether. It was later confirmed that the building they initially contracted had a reserve fund ratio that slightly fell below the threshold.

Starting in 2023, Texas has mandated that condo associations conduct reserve studies. If one has not been conducted since January 1, 2023, it must be completed by January 1, 2024, and then renewed every five years (according to PropFusion research). This law only requires the completion of a reserve study and does not enforce a specific funding ratio. Therefore, even within Austin, there are buildings with strong reserve funds and those that have only completed the study in name.

The school district situation is also worth noting. Among the areas this family was considering in Austin was near the highly-rated Eanes Independent School District, but they learned that downtown condos are generally part of the Austin Independent School District, leading to significant variations in school ratings by area. They noted the importance of checking GreatSchools or Niche ratings and verifying assigned schools based on property addresses, as school boundaries frequently change.

This family also looked into the history of fee increases while exploring other properties. Buildings that have seen gradual increases over the past few years often have well-managed reserve funds, while those with sudden spikes may indicate a late attempt to cover shortfalls. This trend can be confirmed by contacting the management company.

It's also important to consider what is included in the management fees. Basic services typically cover exterior maintenance, master insurance, common area management, landscaping, and reserve fund contributions, with luxury buildings often adding services like concierge or valet. The family realized that high management fees are not necessarily burdensome if they include a sufficient reserve fund.

If this family had checked the building's approval status with the lender before signing the contract, they could have saved time and stress. When viewing properties, it is advisable to first request and verify recent reserve study results, special assessment history over the past five years, and the HOA delinquency rate. Investors aiming for rental income should also review rental restriction clauses. This article does not constitute investment or legal advice, and it is recommended to consult with a professional before finalizing any contracts.