How do HOA fees affect my mortgage qualification in Wisconsin?
Rob Miller explains exactly how Homeowners Association (HOA) fees impact your Debt-to-Income ratio and your ability to qualify for a mortgage in Wisconsin.
Rob Miller, Branch Manager at MadCity Home Loans, answers one of the most common qualification questions we get from Wisconsin buyers.
How do HOA fees affect my mortgage qualification in Wisconsin?
If you are looking at buying a condo or a home in a planned community in Dane County, you are going to encounter Homeowners Association (HOA) fees. One of the biggest mistakes buyers make is looking only at the purchase price and ignoring the HOA fee until the last minute.
Here is the bottom line: HOA fees are treated exactly like debt by your mortgage lender.
The Math Behind the Scenes
When we calculate your Debt-to-Income (DTI) ratio, we don't just look at the principal and interest of your mortgage. We look at your total housing payment (PITI + HOA). This includes:
- Principal & Interest
- Property Taxes
- Homeowners Insurance
- Mortgage Insurance (if applicable)
- HOA Dues
Let's say you are pre-approved for a maximum monthly housing payment of $2,500 based on your income.
If you buy a single-family home with no HOA, that entire $2,500 goes toward your mortgage, taxes, and insurance, giving you more "buying power."
If you buy a condo with a $400/month HOA fee, that $400 is instantly subtracted from your maximum payment. Now you only have $2,100 left for the actual mortgage, taxes, and insurance. A $400 monthly HOA fee reduces your maximum purchase price by roughly $50,000 to $60,000.
Why You Must Tell Your Lender About the HOA
If you are pre-approved for $300,000 on a single-family home, you are almost certainly not approved for a $300,000 condo with a steep HOA fee. You need two separate pre-approvals.
If you write an offer on a condo without having us run the specific numbers including that HOA fee, there is a very real chance you will no longer qualify for the loan when it reaches underwriting.
Always send the specific address (or at least the estimated HOA fee) to our team before you submit an offer so we can verify the math works.
Related Guide: Make sure you understand the nuances of condo financing in our Complete Guide to Buying a Condo in Madison.