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 homeowners, 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 About Buying a Condo in Connecticut? Call Attorney Glouzgal at 203-885-0500

The post Why Do I Have To Pay A Capital Contribution To The Condominium Association When Buying A Condo In Connecticut? appeared first on Glouzgal Law PLLC.