Why Do I Have To Pay A Capital Contribution To The Condominium Association When Buying A Condo In Connecticut?

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Capital Contribution to HOA

Closing Costs Paid to Condo Association

Today, I had a closing with a client n a condominium in New Milford. The particular condominium association (or home owners association, commonly called “HOA”) had a condition to buying a property there: he had to make a “capital contribution” to the association accounts in the amount of two months of HOA fees. This left my client wondering: “Why do I have to a capital contribution to the condo association?”

FHA Guidelines for Condo Associations

The answer here is regulation by the Federal Housing Authority, or “FHA”. In order for potential buyers to be able to get FHA loans for units in a certain condo complex, that complex has to meet numerous guidelines. Some of these guidelines pertain to the fees, budget, and funds on deposit of the condo association.

Keep in mind, associations DO NOT have to comply with FHA guidelines. They do it as a courtesy to potential homewoners, so that they can get FHA and CFHA loans for the units in that complex. This is important because it allows the buyers to get loans with as low as 3.5% down and great interest rates if they qualify for FHA loans. This is also good for potential sellers of condominiums because it increases the number of people that can afford to buy the units in FHA approved complexes.

Which FHA regulations are Capital Contributions meant to meet?

Adequate Reserve Funds

One of the FHA requirements for condominiums is that they maintain an adequate reserve on deposit. There is no set dollar amount. However, there are two main concerns:

  1. Funds to cover all insurance deductibles; and
  2. Funds to cover repairs and replacements for two years.

By charging a new unit owners a Capital Contribution, the HOA can make sure they have sufficient funds on deposit and can remain compliant with FHA regulations.

Delinquent HOA Dues

Another FHA requirement is that no more than 15% of unit owners can be 60 or more days behind on their HOA dues.

By charging two months of dues up front, if the owner becomes ill or loses their job and cannot make their HOA payments, the HOA can give themselves a buffer on collecting those overdue HOA fees from unit owner.

Questions Aout Buying a Condo in Connecticut? Call Attorney Glouzgal at 203-794-6691

chfa downpayment assistance

CHFA Loans – Connecticut Housing Finance Authority Mortgage Assistance

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CHFA Mortgage Assistance for Connecticut Home Buyers

The Connecticut Housing Finance Authority, or CHFA, provides mortgage assistance programs to homebuyers in Connecticut. To receive CHFA mortgage assistance, you must be a first-time homebuyer or buying a home in a revitalization zone and qualify for CHFA assistance based on income. CHFA offers both low interest rate loans as well as downpayment assistance.

CHFA mortgages can be used to purchase single family homes, condos, multi-family homes, and even some mobile homes.

The current CHFA interest rate is 3.5% for government insured mortgage loans and 3.75% for non-insured mortgage loans.

CHFA First-Time Homebuyer Mortgages

Under the CHFA, first-time homebuyers and those who have not owned a home in over three years qualify for the First-Time Homeowner program. The Buyer, or borrower, must also mee

There are also income limits as well as property value limits for CHFA mortgages. The Buyer, or borrower, must make less than a certain amount, which is $87,800 for a home of 1 to 2 people, and $100,970 for a home of three or more people. There are also some income limit differences depending on the town you are looking to purchase in. The property value limits also vary by town. The income and property value limits for specific towns are listed here: CHFA Income & Value Limits by Town.

CHFA Down Payment Assistance

As a separate service from its low interest mortgage loans for low-income households, CHFA also offers downpayment and closing cost assistance. Down Payment Assistance is offered to borrowers who can afford to pay both loans but lack the savings to make the downpayment (less than $10,000.00 total household savings).

The minimum for Down Payment Assistance loan amount is $3,000, with the maximum being the minimum downpayment amount for the actual CHFA mortgage. In most cases, the Down Payment Assistance interest rate will match the CHFA mortgage interest rate, but it can vary and could be up to 6%.

CHFA Revitalization Zones

CHFA also offers mortgage assistance for homebuyers looking to purchase homes in certain areas marked for revitalization. These are areas where the Federal Government has determined would benefit from and increase in home ownership.

In the CHFA Revitalization Zones, the first-time homebuyer requirement is suspended, 1/4% reduction in CHFA published interest rate, income limits do not apply unless also seeking downpayment assistance, and mortgage insurance may be suspended.

In Connecticut, these revitalization areas include Ansonia, Bridgeport, Danbury, Derby, East Hartford, Groton, Hartford, Manchester, Mansfield, Meriden, Middletown, New Britain, New Haven, New London, Norwalk, Norwich, Stamford, Torrington, Windham and Waterbury.

The Lender you choose can give you more information about the details, costs, benefits and downsides of a CHFA mortgage. Click for a List of Participating CHFA Lenders

maximum fha loan amount

Federal Housing Finance Agency “FHFA” Raises FHA Loan Limits for 2017 – First Increase Since 2006

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FHFA Announces Increase in Maximum Loan Amounts for Conforming “FHA” Mortgages

There is some good news for those people looking to buy a home in 2017. The Federal Housing Finance Agency, or FHFA, has announced that for the first time since 2006, they will be raising the maximum conforming loan limits for FHA mortgages.

FHA mortgages, for those that may not be aware, are those that are insured by the Federal government. FHA mortgage loans are popular because they allow prospective home buyers to put as little as 3.5% down to buy.

How is the FHA Maximum Mortgage Loan Limit Calculated?

The baseline loan limit for FHA mortgages was set back in 2008 through the Housing and Economic Recovery Act (HERA). HERA sets the baseline FHA mortgage loan limit at $417,000 with a yearly review and adjustment based on the average home price nationally. However, we all know that home prices vary greatly across the country. Therefore, the FHA raises mortgage loan limits in high-cost areas; where the median (or mid point) of home values is greater than 115% of the baseline loan amount. The maximum increase in high-cost areas is to 150% of the baseline.

What are the 2017 FHA Mortgage Loan Limits?

The FHFA Housing Price Index for the third quarter of 2016 increased for the first time since the third quarter of 2007, on which the HERA baseline was calculated. The increase in the Housing Price Index between the two periods was about 1.7%. Therefore, the baseline FHA loan amount for conforming mortgages is being increased from $417,000 to $424,100. The maximum FHA mortgage loan amount is further increased to up to $636,150 for high-cost areas.

Fairfield County, Connecticut is considered to be a high-cost area under the FHA guidelines. The Maximum FHA mortgage loan amount for Fairfield County is $601,450. This is just $34,700 less than the FHA absolutely maximum allowable mortgage loan amount for the highest cost areas in the country.

Why Buy With An FHA Loan?

A stated above, FHA mortgage loans are popular because they allow the Buyer to put less than 20% down, often as low as 3.5%. Additional benefits are refinancing without appraisals and FHA mortgages being assumable by future Buyers.

However, FHA loans require mortgage insurance premiums (MIP) for any loans with less than 20% down. There is both an “up front” fee that is paid at closing as well as monthly payments. MIP is an additional expense that home buyers should consider when deciding between FHA and other loan types.

 

 

What is the Connecticut Real Estate Conveyance Tax?

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What is a real estate conveyance tax?

A real estate conveyance tax is a tax paid by the “Transferor” in a real estate transaction, typically this is a Seller. However, there are some clever Sellers that put the burden of paying the conveyance tax on the Buyer in the real estate purchase and sale contract. The conveyance tax is paid BOTH to the State of Connecticut as well as to the municipality in which the property is located. The real estate conveyance tax MUST be paid to the Town Clerk (note: not the tax collector) at the time that the Deed transferring title is recorded on the land records. You must also present a completed  and signed OP-236 – Connecticut Real Estate Conveyance Tax Return. A fillable online version is available here.

How much is the real estate conveyance tax in Connecticut?

The amount of the conveyance tax is dependent on the value of the real estate property being conveyed. In Connecticut, the real estate conveyance tax is .0075 of every dollar to the State (thts 3/4 of 1%) and .0050 of every dollar to the local municipality (that’s 1/2 of 1%).

If a home sells for $200,000.00, the Seller will have to pay $1,500.00 to the State of Connecticut, and $1,000.00 to the Town.

Are there any exceptions to the Connecticut Real Estate Conveyance Tax?

There are 22 exceptions that are noted on the back of the instructions to the return. The most commonly used are conveyances between spouses, conveyance due to foreclosure, and conveyance for little or no consideration.

About the Real Estate Binder

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About the Real Estate Binder

What is a Binder? 

A real estate binder is an agreement that is commonly drafted by real estate agents. It is a document that contains all the terms of a proposed real estate transaction and usually contains the names of both parties, who their real estate agents are, who their attorneys are, the address of the subject real estate property and of the course the purchase price.

What is the Purpose of a Real Estate Binder?

A binder serves two main functions: to outline the basic terms of the agreement and to commemorate the intent of both buyer and seller to enter into the deal.

However, is the real estate binder a binding contract? After all, it is in writing and signed by both parties, it identifies the property and the sales price. Sometimes there is even an earnest money deposit that is made. Isn’t that enough to bind the two parties, as the ame binder implies?

Whether the binder is a binding contract depends on the customs of your area and the language of the binder. Even within Connecticut, there are very different customs between say Fairfield County and the Hartford Area. In Fairfield County it is custom for attorneys to draft the final contracts. Therefore, it is common to find binders with language that calls for a further “superseding contract between the parties to incorporate the details stated herein”. In northern parts of Connecticut, some real estate agents specifically draft binders that are meant to binding real estate purchase and sale contracts, with language that allows for an attorney review period that is often 7 or 14 days from date of signing.

The three factors to look for when deciding when a binder is meant to be the contract are (1) does the language indicate intent to be bound without further contracting, (2) due the circumstances of the transaction indicate an intent to be bound, and (3) was the purpose of signing the binder to bind the parties to a final deal?

What Are the Real Estate Binder & Contract Customs in Fairfield County, Connecticut?

With the Fairfield County custom being that the attorneys draft the real estate purchase and sale agreement, how does this process with binders play out? It all starts with the real estate agents.

The real estate agents in Fairfield County know the custom and therefore, they use binders that call for a superseding contract. Many realtors do not use a binder, per se, but chose instead to use an “Information Sheet”, which has all the same contents as a binder, but does not have the signatures of the buyer or seller.

The binder or information sheet need to find their way to the Seller’s attorney. The Seller’s attorney then drafts a proposed contract using those terms and sends two unsigned copies to the Buyer’s Attorney. The Buyer’s Attorney reviews the contract, negotiates any changes that may be necessary, and has his client sign both originals, as well as provide a check for any deposit amounts due at contract signing. Both originals and the deposit funds are sent back to the Seller’s Attorney, who has the Seller sign both originals, and returns one original to Buyer’s Attorney and keeping one original for their file.

Get A Real Estate Attorney ASAP

Please understand that the sooner you get a real estate attorney involved in your transaction the better. You should have somebody to call and ask questions about the documents you are expected to sign BEFORE you sign them. After you sign, all we can do as your real estate attorney is explain what it says and means.