An HOA Cert (HOA Certification) functions as a financial health report for a condominium building.
Even if you have an excellent credit score — 780 or higher — your mortgage can be denied immediately if serious issues are discovered in the HOA Cert review.
Today, Loaning.ai breaks down what an HOA Cert is, why it matters, and how recent insurance challenges in California are affecting condo buyers.
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What Is an HOA Cert?
Just as individuals undergo health checkups, lenders must assess the financial and structural health of the condominium that serves as collateral for the loan. The official document used for this evaluation is the HOA Cert (HOA Certification).
The “Building Creditworthiness” That Determines Loan Approval
For a single-family home, only your personal repayment ability matters. However, a condo functions as a community. If neighboring owners fail to pay HOA dues, or if the association faces bankruptcy or litigation, the value of your unit can decline significantly.
Through the HOA Cert review, lenders carefully evaluate whether the condominium meets guidelines set by agencies such as Fannie Mae and qualifies as a warrantable condo.
If any of the following red flags are discovered during the HOA Cert review, the loan may be denied — even if your personal financial profile is strong.
✓ Litigation: The association is involved in active lawsuits, especially related to structural defects.
✓ Weak Financial Reserves: The reserve fund is less than 10% of the annual budget.
✓ High Investor Ratio: The percentage of rental units significantly exceeds owner-occupied units.
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The Hidden Risk in California Condo Purchases: HOA Master Insurance Issues
Recently, the primary concern for California condo buyers has shifted from financial red flags to insurance-related issues.
Due to increased wildfire risk, several major insurance carriers have paused new policies or withdrawn from the California market.
Master Policy Risks
If the condo association’s master insurance policy:
- has not been renewed and is in a lapsed (uninsured) status, or
- provides coverage significantly below the building’s replacement cost (underinsured),
the mortgage will almost certainly be denied.
Walls-In Coverage Is Critical
During the HOA Cert review, lenders must confirm whether the master policy provides structural-only coverage or includes interior (“walls-in”) coverage.
If interior coverage is not included, the buyer must obtain an individual HO-6 policy to cover the gap before loan approval can proceed.
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How to Identify a Safe Condo: Proper HOA Cert Review
So how can you determine in advance whether a condo is safe to finance? The HOA Cert review process varies depending on the loan program.
❶ FHA Loan: Check the HUD Approval List
If you are using an FHA loan, verification is relatively straightforward. You can check on the HUD website to see whether the condo project is officially listed as Approved.
❷ Conventional Loan: Review Depends on Down Payment
Conventional loans do not have a public approval list. Instead, the review level depends on the size of your down payment.
✓ Full Review: Required for lower down payments. All financial and legal aspects of the HOA Cert are examined in detail.
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HOA Cert Process During Mortgage Underwriting
Understanding the timeline helps prevent closing delays.
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Pre-Reviewing the HOA Cert
Buying a condo requires additional due diligence compared to purchasing a single-family home, as there is one more critical factor to evaluate. In California particularly, it’s smart to verify any pending lawsuits and insurance coverage through the listing agent before submitting your offer.
Don’t navigate this alone. Even before you formally apply for a mortgage, Loaning.ai can help assess the potential risks of a specific condo from a professional perspective.
Start your path to safe homeownership with Loaning.ai.
