[DSCR](/blog/what-is-dscr-ratio) Loans for HOA Properties: Navigating Condo and HOA Investment Financing

Condos, townhomes, and homes in planned communities governed by homeowners associations (HOAs) represent a significant portion of the U.S. housing market. For investors, these properties often offer lower entry prices, less maintenance responsibility, and access to desirable locations. But HOA rules add layers of complexity to [DSCR loan qualification](/blog/dscr-loan-minimum-ratio) that investors must understand.

HOA fees directly reduce your [net operating income](/blog/net-operating-income-guide), HOA rental restrictions can prevent you from renting the property, and some DSCR lenders have specific condo project approval requirements. This guide covers everything you need to know about using [[DSCR loans](/blog/best-dscr-lenders-2026)](/blog/dscr-loan-guide) for HOA-governed investment properties.

How HOA Fees Affect Your DSCR

The DSCR Calculation with HOA Fees

The standard DSCR formula includes HOA dues in the denominator:

DSCR = Monthly Rent ÷ (Principal + Interest + Taxes + Insurance + HOA Fees)

This means HOA fees directly reduce your DSCR. The higher the HOA fee, the harder it is to achieve a qualifying DSCR.

Example without HOA:

• Rent: $2,000
• P&I: $1,100, Taxes: $200, Insurance: $100
• PITIA: $1,400
• DSCR: 2,000 ÷ 1,400 = 1.43

Same property with $400/month HOA:

• PITIA + HOA: $1,800
• DSCR: 2,000 ÷ 1,800 = 1.11

That $400/month HOA fee dropped the DSCR from a strong 1.43 to a borderline 1.11. This is the fundamental challenge with HOA properties.

HOA Fee Ranges

Typical HOA fees vary significantly:

• Single-family in a planned community: $50-$200/month
• Townhome: $150-$400/month
• Standard condo: $200-$500/month
• Luxury condo: $500-$1,500+/month
• High-rise condo: $400-$2,000+/month

The key question: Does the rent premium in the HOA community offset the HOA fee? If a condo in a resort-style community with pools, gyms, and gated entry rents for $400+/month more than a comparable non-HOA property, the HOA fee may be justified.

Condo Project Approval Requirements

Why It Matters

Many DSCR lenders have project-level requirements for condominiums beyond the individual unit evaluation. These requirements stem from the risks associated with condo projects:

• High investor concentration can destabilize a project
• Underfunded reserves can lead to special assessments
• Active litigation against the HOA signals problems
• Single-entity ownership concentration creates risk

Common Project Requirements

DSCR lenders typically evaluate:

Investor concentration: Maximum percentage of units owned by investors (not owner-occupied). Common limits: 50-75% investor-owned.

Single-entity ownership: No single entity should own more than 10-20% of total units.

HOA financial health: Adequate reserves (typically 10%+ of annual budget), no delinquency issues, and a balanced budget.

Litigation: No pending litigation against the HOA (some lenders allow minor litigation with explanation).

Insurance: HOA master policy must meet minimum coverage requirements.

Commercial space: Limited commercial space in mixed-use projects (typically <25% of total area).

Completion: The project must be substantially complete (typically 90%+) with the developer having turned over control to the HOA.

Non-Warrantable Condos

If a condo project doesn't meet standard guidelines, it's considered "non-warrantable." Common reasons include:

• Too many investor-owned units (>50%)
• Active litigation
• Single entity owns too many units
• Insufficient HOA reserves
• Hotel-condo or condotel operation
• New construction not yet turned over to HOA

DSCR lenders are generally more flexible with non-warrantable condos than conventional lenders, but expect:

• Higher down payment (25-30%)
• Higher interest rates
• More limited lender options
• Additional project documentation requirements

HOA Rental Restrictions

Types of Rental Restrictions

This is the most critical issue for DSCR investors. If the HOA prohibits or severely restricts rentals, you can't use the property as an investment.

No restrictions: Property can be rented freely. Ideal for investors.

Lease length minimums: Common restriction requiring 6-month or 12-month minimum leases. This prevents short-term rentals but allows traditional long-term investing.

Rental caps: The HOA limits the total number or percentage of units that can be rented at any time. If the cap is reached, new owners can't rent until a spot opens. This is a deal-killer if the cap is full.

Waiting periods: New owners must wait 1-2 years before renting. Problematic for investors.

No rentals allowed: Some HOAs prohibit all rentals. Obviously incompatible with investment use.

Short-term rental bans: No rentals under 30, 60, or 90 days. Compatible with long-term rental strategy.

How to Check Rental Restrictions

Before making an offer:

1. Request the CC&Rs (Covenants, Conditions, and Restrictions) from the HOA
2. Read the bylaws for any rental-related provisions
3. Ask the HOA management company directly about current rental policies and cap status
4. Check recent HOA meeting minutes for any proposed rule changes
5. Consult a local [real estate attorney](/blog/how-to-build-real-estate-team) if anything is unclear

Qualification Requirements for HOA Properties

Borrower Requirements

Standard DSCR borrower qualifications apply:

• Credit score: 660+ (680+ preferred)
• Down payment: 20-25% (25-30% for non-warrantable condos)
• Reserves: 3-6 months PITIA + HOA
• Entity structure: LLC acceptable with most lenders

Property Requirements

• Habitable condition
• Rental allowed under HOA rules
• HOA in good financial standing
• No active litigation (or acceptable litigation with lender review)
• Adequate HOA insurance coverage
• Investor concentration within lender limits

Documentation Beyond Standard DSCR

For HOA properties, you'll typically need to provide (or the lender will request):

• HOA questionnaire: Standard form completed by the HOA management company
• HOA budget: Current annual budget and financial statements
• Reserve study: Most recent reserve analysis
• Insurance certificate: Proof of HOA master insurance policy
• CC&Rs and bylaws: Governing documents
• Meeting minutes: Recent board meeting minutes (some lenders request 12 months)

Strategies for Successful HOA Property Investing

Maximize Your DSCR Despite HOA Fees

• Focus on low-fee communities: $100-$250/month is ideal for maintaining DSCR
• Seek high-rent areas: Markets where rents significantly exceed PITIA + HOA
• Value-add opportunities: Renovate units to command premium rents
• Avoid luxury amenities you're paying for: A condo with a $600/month HOA for luxury amenities your tenant doesn't value is a poor investment

Evaluate What HOA Fees Include

Not all HOA fees are pure cost. Many include expenses you'd otherwise pay separately:

• Water/sewer: Saves $50-$100/month
• Trash collection: Saves $25-$50/month
• Exterior maintenance: Saves repair costs
• Roof maintenance: Eliminates a major capex category
• Landscaping: No lawn care costs
• Insurance (master policy): Reduces your individual policy cost
• Amenities: Can justify premium rent if tenants value them

When calculating true investment cost, subtract the expenses the HOA fee replaces.

Watch for Special Assessments

Special assessments are one-time charges the HOA levies for major repairs or capital improvements not covered by reserves. These can be devastating:

• Roof replacement: $5,000-$20,000 per unit
• Building envelope repair: $10,000-$50,000 per unit
• Elevator modernization: $5,000-$15,000 per unit
• Pool/amenity [renovation](/blog/bathroom-renovation-cost-guide): $2,000-$10,000 per unit

Due diligence tip: Review the reserve study carefully. A well-funded reserve (70%+ funded) reduces special assessment risk. An underfunded reserve is a red flag.

Monitor HOA Fee Increases

HOA fees typically increase 3-5% annually. Some increase more dramatically when:

• Insurance costs spike (common in coastal and disaster-prone areas)
• Major repairs are needed
• The HOA was underfunded by the developer
• New amenities or services are added

Factor expected fee increases into your long-term investment analysis.

Pros and Cons of HOA Investment Properties

Advantages

• Lower entry price than comparable single-family homes in many markets
• Reduced maintenance responsibility (exterior, roof, common areas)
• Amenities attract tenants (pools, gyms, gated entry)
• Consistent property appearance maintained by HOA
• Insurance savings from HOA master policy
• Location access: Condos available in urban and resort locations where single-family homes are unaffordable
• Lower per-unit management cost

Disadvantages

• HOA fees reduce DSCR and cash flow
• Rental restrictions may limit or prevent investment use
• Special assessment risk for unexpected expenses
• Less control over property decisions (HOA board governs)
• Project approval requirements limit lender options
• HOA fee increases can erode returns over time
• Slower appreciation than single-family in many markets
• Investor concentration limits may prevent purchase
• HOA rule changes could restrict rentals after purchase

Red Flags to Avoid

• HOAs with rental caps near or at capacity
• Projects with pending litigation
• HOAs with reserves funded below 50%
• Recent or planned special assessments
• High delinquency rates among unit owners
• Single developer still controlling the HOA board
• Rapidly escalating HOA fees (check 5-year history)
• HOAs with recent rule changes restricting rentals

Types of HOA Properties for DSCR Investing

Best for DSCR Investors

Townhomes in planned communities: Low HOA fees ($50-$200), minimal restrictions, strong rental demand, and appreciation potential similar to single-family homes.

Garden-style condos: Low-to-moderate HOA fees, strong rental markets in suburban areas, and fewer project approval issues than high-rises.

Proceed with Caution

High-rise condos: Higher HOA fees, more complex project approval, but access to premium urban locations with strong rental demand.

Resort condos: Potential for high seasonal income but volatile occupancy and high HOA fees.

Generally Avoid

Luxury condos with premium amenities: HOA fees of $800+/month destroy DSCR unless rents are exceptionally high.

55+ communities: Rental restrictions and age requirements limit tenant pool.

New developments still under developer control: Unknown future HOA costs and potential for developer-to-owner transition issues.

Getting Started

1. Learn DSCR fundamentals: Read our [complete [DSCR loan guide](/blog/dscr-loan-for-beginners)](/blog/dscr-loan-guide)
2. Research HOA rules: Always check rental restrictions before analyzing a property
3. Calculate true DSCR: Include HOA fees in your PITIA calculation
4. Review HOA financials: Request and analyze budgets, reserves, and meeting minutes
5. Find condo-friendly DSCR lenders: Not all lenders finance HOA properties, and requirements vary
6. Factor in total costs: HOA fees, expected increases, and special assessment risk
7. Build local knowledge: Understanding which HOA communities are investor-friendly is a competitive advantage

HOA properties can be excellent investments when the numbers work. The key is rigorous due diligence on both the individual unit and the HOA itself. A low HOA fee in a well-managed community with no rental restrictions is a great find. A high-fee community with pending assessments and a full rental cap is a trap. Know the difference before you buy.

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