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Everything You Need to Know About Cloud-Condo Financing

Condo ownership is a wonderful option for many people across the country.

It not only provides affordable living, with little to no maintenance or yard work, it can be more convenient for people who are either incapable or simply don’t have time for these tasks. From retirees to young professionals and even large families, condo living is often a great choice.

If you research condos, you’ll eventually come across a term called “cloud condos.” This unique form of structuring condos is a good option for many people, but financing and ownership can be a little complicated.

Let’s take a closer look at the purpose and details behind cloud condos to see if it may be right for you…

Cloud Condos: How They Affect Your Ownership and Financing

Cloud Condo: Taking the HOA Out of Condo Living

Local governments set zoning laws to define what types of structures can be built in what locations. These zoning laws are important to the overall quality and function of a town or city. Although they certainly frustrate some people, they can be important for property values and the overall livability of a city.

Some zoning laws often limit the size of structures that can be built in a specific area. They may create a situation where larger single-family homes cannot be built, restricting the area to condominiums and planned communities, which often have a homeowners association, or “HOA.” The HOA, a group of elected representatives from the community or building, essentially acts as the governing body. 

Some people simply don’t want to live under the watch of an HOA. They don’t want the rules and perceived politics of an HOA, and they don’t want to pay the fees that come with condo ownership.

The cloud condo is a new concept that tries to fix this problem. Essentially, a cloud condo is a complex that meets the local zoning restrictions on lot size but does not have a homeowners association.

How is it possible to have no HOA? It’s possible because cloud condominiums have no common area. In most cases, the primary purpose of the HOA is to provide maintenance and make decisions on common areas, such as fitness centers, hallways, or lounges. If the hallways need new flooring, the HOA hires a carpet layer. If the lounge area needs a new television, the HOA purchases one.

But if there’s no common area, there is no longer a need for an HOA.

Units can be attached or detached and can come in many different forms, but having no common area, such as fitness centers or lounge halls, essentially eliminates the need for an HOA to provide their services.

The Term “Cloud Condo”

So where does the cloud come in? We’re not talking about software; in this case, the term “cloud condo” is derived because every condo owner has rights to areas that include their property and roughly 50 feet up into the clouds. Technically speaking, if you own a cloud condo, your ownership rights include the square footage of property and all the space above it going up 50 feet.

CC&R Replaces the HOA

While cloud condos do not have homeowners associations, they are governed by a system called covenants, conditions, and restrictions, or “CC&R.” The CC&R is provided to every homeowner when they purchase a cloud condo, and it outlines specific rules for the neighborhood. These rules can vary, but they often cover what you can and cannot do with your home, as well as expectations for upkeep. Some may provide restrictions on pet ownership, street parking, or fencing in the front or back yards.

How Does this Affect Ownership and Financing?

Now that we understand what a cloud condo is, we can start looking at the factors involved in ownership and financing.

Condos and Townhouses
Because of the uncertainty, the FHA does not insure cloud-condo financing.

First of all, you need to understand that because cloud condos are a relatively new concept, the Federal Housing Administration, which insures home loans, is still grappling with how to approve lending for these facilities. As of now, the FHA does not approve these condominium projects, largely because they still need to work out the details and risk factors, such as debt-to-income ratios, interest rates, and all the other variables that come with condo ownership. Until they figure out the details, they have chosen to avoid lending on cloud condos. While these types of units are not available for FHA approval, some types of co-housing communities are, assuming they meet specific FHA guidelines.

However, the FHA only provides insurance on loans; they don’t actually make the loan. While an FHA-backed loan may be off the table, there are options for financing on cloud condos.

To increase your chances of affordable financing, you should consider many of the factors that lenders look at. For example, lowering your debt-to-income ratio will increase your chances of approval, as will bringing a larger down payment. Some factors may also depend on the specific unit you select, so make sure to speak with a knowledgeable professional to understand the basics of cloud condo financing and ownership.

Advantages of a Cloud Condo

There are many advantages to owning a cloud condo. Because there is no HOA, there are no HOA dues that you have to pay on a monthly or annual basis. This lowers the cost of living, which could be an advantage when you are seeking a loan. You also won’t have to deal with the potential hassles of an HOA, which many people find overbearing. While most homeowners have positive relationships with their HOA, some people prefer to live without this governing body.

Disadvantages of a Cloud Condo

There is one important downside to living in a cloud condo. Because there is no HOA, any disputes have to be settled between the two parties. For example, it two neighbors have a dispute over a fence between their properties, there is no HOA to help reach a solution. If the issue can’t be settled, the issue may have to go to court, which is not only a major hassle, it can result in costly legal fees for both parties.

Expert Advice on Cloud-Condo Financing

If you are interested in financing a cloud condo, contact San Diego Purchase Loans today.

We’ll help you understand the details of this property type and help you make a smart purchase on your home!

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Chad Baker, CrossCountry Mortgage   
NMLS# 329451 | CCM NMLS# 3029