Question of the Month
Before making an offer on a condo, I asked to see the Homeowner's Association documents like CC&R's, budget and so on. I was told they would be provided AFTER I made the offer, but not before. Is this customary?
Answer
What you're asking seems to be common sense, but is unworkable. You're asking for a stack of paper that could be thicker than a really fat book. As a comparison, your property inspector or appraiser do not go through the property before you make an offer, either.
You see, an employee of the property management company has to photocopy that humongous stack of paper, then messenger it to you. This takes time, labor, paper, and money. They are not going to do it without expectation of earning their fee, known as the HOA Transfer Fee. Keep in mind that the property management company earns this fee, not the Homeowners Association. There are so many entities involved in a real estate transaction, it boggles the mind.
What you can do is make your offer contingent upon a successful review of the documents. Stipulate a specific period of time for you to receive them, then a number of days for review.
In addition, most lenders review those same documents as part of processing your loan. If the association doesn't pass muster with the underwriter, the project's properties won't qualify for financing. So you have a backup expert reviewing the same set of documents that you are concerned about.
Tip of the Month
When you see a real estate advertisement that quotes a payment amount, it also must include a number called the APR. That stands for "annual percentage rate." When you apply for a mortgage, the lender is supposed to mail you a "good faith estimate" and a "truth in lending statement" within three business days. The note rate is quoted, along with the APR.
The APR is always higher than the note rate you are quoted.
Why?
Partly because APR is a totally artificial number. It is not the note rate on the loan and does not determine your monthly payment. It is calculated according to a formula determined by the government and is supposed to provide a method for comparing one mortgage offer against another, even when the rates, points, and costs differ.
The APR is supposed to help you determine your "true cost" of borrowing.
What follows is a simplification of how the APR is calculated:
The lender totals up certain specific costs associated with the loan and the interest rate that was quoted to you. Those costs are subtracted from the loan amount you inquired about. That results in a figure lower than your loan amount. Then the payment for your loan is calculated "as if" it were the payment on that lower amount.
As a result, the APR is always higher than the note rate you are quoted. The only exception is when the lender pays for all of your costs, which is often referred to as a "no cost" loan. There really are costs -- the lender is just paying them for you.
Keep in mind that the explanation above is a simplification. Computers are used to actually calculate the APR. Loan officers do not sit down with a pencil and paper and figure it out, even using a calculator.
There is some guesswork involved. For example, arms have an APR, too -- but no one really knows what rates will do in the future. Also, no lender really knows all the costs until the loan actually closes (a subject for a future column) - that is why the Good Faith Estimate is called an estimate. Since costs affect the APR, it cannot be accurately quoted until the end of the process.
Even then, it is still a fictional number, a loan with a lower interest rate and higher points could easily have a higher APR than that quote at a higher note rate and lower costs, but your "true cost" of borrowing may depend more on how long you keep the loan than anything else. Paying more in points to get a lower interest rate may save you more money if you intend to remain in the property for a long time -- even though it has a higher APR.
