Condo & HOA Red Flags Before You Buy in Washington State

Buying a condo or townhome in Washington means you’re not just qualifying for a mortgage — you’re buying into an association’s finances too. This guide walks through what to check before you write an offer, how HOA dues factor into your qualifying ratios (now and later, if you refinance), and how reserve funding, litigation, and special assessments can affect your financing.

If you’ve been house hunting in a condo or townhome community anywhere in Washington State, you may have noticed something: HOA dues have been climbing and so has talk of special assessments. This isn’t your imagination. Insurance costs for condo and HOA associations have risen sharply across the state, and Washington’s reserve study laws are in the middle of a multi‑year transition. Both of these directly affect whether a building qualifies for financing — and whether you may be hit with a large bill shortly after closing.

Here’s what I walk buyers — and condo owners considering a refinance — through when evaluating an association.

How Home Owner Association dues affect your qualifying debt‑to‑income ratio

Here’s something that surprises a lot of buyers: HOA dues aren’t part of your mortgage payment, but lenders still count them against you when qualifying. Your monthly dues get added into your debt‑to‑income (DTI) ratio right alongside principal, interest, taxes, and insurance — even though the association, not your lender, collects that money. A $500/month HOA due reduces your qualifying power in exactly the same way a $500 car payment would.

This matters for two reasons:

• Dues aren’t fixed. Like property taxes and insurance, HOA dues typically rise over time — and given the insurance and reserve‑funding pressures many Washington associations are facing right now, increases have been larger and more frequent than in past years. A building’s current dues are a starting point, not a guarantee.
• Timing can catch you off guard. If dues increase between your preapproval and closing — or if you’re comparing two similar units with meaningfully different dues — your qualifying numbers can shift even though the loan amount hasn’t changed. I always recommend confirming the current dues amount (and asking whether an increase is already planned or under board discussion) before finalizing how much home you’re comfortable offering on.

This doesn’t stop mattering once you own the home, either. If you refinance down the road, your current HOA dues get counted against your DTI at that point too — and if dues have risen since you purchased, that can potentially impact the qualifying power you’re counting on for a refinance (depending on what your income and other factors are in the future).

What is a special assessment, and why are they becoming more common?

Your regular HOA dues cover predictable costs — landscaping, management fees, utilities for shared spaces, and a contribution to the reserve fund. A special assessment happens when the reserve fund isn’t enough to cover a major expense, and the association bills owners directly to make up the shortfall.

Two forces are pushing more Washington associations toward special assessments — and higher regular dues — right now:

• Rising insurance premiums. Master policy costs for condo and HOA associations have increased significantly across the Puget Sound region, driven by construction cost inflation and how insurers are pricing climate and rebuilding risk. When premiums jump faster than a budget anticipated, boards sometimes have to assess owners — or raise dues ‑ to cover the gap.
• Underfunded reserves. Associations that have kept dues artificially low for years — rather than fully funding for roof replacement, siding, elevators, or plumbing — eventually face a bill they can’t defer any longer.

Neither of these is unique to any one building type. It can happen in high‑rise condos in downtown Seattle just as often as smaller townhome communities in Federal Way or Edmonds.

Washington’s reserve study requirements (and why they’re changing)

Washington law requires most condo associations (RCW 64.34.380) and HOAs with significant shared assets (RCW 64.38.065) to complete and maintain a reserve study — a professional estimate of major components (roof, siding, elevators, paving) and how much needs to be set aside each year to replace them on schedule. A full on‑site study is generally required at least every three years, with updates in between.

Here’s the part that catches buyers off guard: Washington is in the middle of transitioning older condo and HOA law into a newer, more uniform framework (the Washington Uniform Common Interest Ownership Act, RCW 64.90). The older reserve study sections are scheduled for repeal in 2028. That doesn’t mean the requirements go away — it means the rules an association is following today may be stricter, or structured differently, by the time you’ve owned the home a few years. It’s one more reason a current reserve study, not an old one, matters when you’re evaluating a building.

On the lending side, this is tightening too: Fannie Mae and Freddie Mac now require associations to allocate at least 15% of their annual budget to reserves as of January 4, 2027 (up from 10%), unless the association has a current reserve study supporting a different funding level. Associations that haven’t kept up with this will feel it — both in their budgets and in whether their building stays eligible for conventional financing, whether that’s a purchase or a refinance.

Read: Fannie Mae & Freddie Mac Changed the Rules on Condo Financing for the full timeline of every change — investor concentration limits, reserve requirements, insurance rules, and the Limited Review retirement — and what each one means for your purchase or refinance.

Read: Financing a Condo in Washington State for the full breakdown of how lenders evaluate a project, including reserve requirements, project review paths, and what makes a building non‑warrantable.

What percent funded should a reserve study show?

There’s no single dollar figure that’s “enough” — it depends entirely on the size of the building and what it has to replace. The number that actually matters is percent funded: the association’s current reserve balance divided by the fully funded balance the study calculates (what it should have, based on the age and condition of every major component).

• 70% or higher is generally considered healthy. The association can typically absorb upcoming replacements without a special assessment.
• 30–70% is a caution zone — worth a closer look at what’s coming due and whether the board is actively closing the gap.
• Below 30% signals high special assessment risk.

A high percent‑funded number alone doesn’t guarantee safety, though. Check the study’s component list for anything with a remaining useful life of zero, or due within the next year or two — a building at 75% funded can still be headed for a large assessment if a roof or elevator replacement is imminent. The trend matters too: an association at 45% funded and actively raising contributions toward the recommendation is often in better shape than one at 70% and drifting downward.

What to check before you write an offer

HUD recommends reviewing the association’s governing documents before you sign a purchase agreement, and I’d go further — these documents tell you as much about the financial health of your future home as the inspection does. Before you’re under contract, ask for:

• Current dues, and whether an increase is planned. Ask directly — boards often discuss upcoming increases in meeting minutes well before they take effect.
• The current reserve study. Not one from several years ago — the most recent one, its percent funded figure, and how that compares to the recommendation.
• The HOA budget. How much goes to reserves versus operating expenses, and whether dues have been raised recently (or held flat despite rising costs — often a warning sign, not a benefit).
• Meeting minutes from the last 12–18 months. This is where you’ll find early discussion of a pending assessment, litigation, or deferred maintenance long before it becomes official.
• The master insurance policy. What it covers, the per‑unit deductible, and whether roof coverage is on a replacement‑cost or actual‑cash‑value basis.
• Delinquency rate. What percentage of owners are behind on dues — a high rate strains the reserve fund and can affect financing eligibility.
• Any pending or active litigation involving the HOA. Construction defect claims, insurance disputes, and disputes with a management company or developer can stall or block financing entirely, and they’re not always disclosed upfront.
• Any pending or recent special assessments, even ones the seller may not have proactively disclosed.

In many transactions, this is what the resale certificate is for — but I’d encourage you not to wait for it. If your agent can request these documents early, you’ll have time to evaluate them (or walk away) before you’re financially committed with earnest money and inspection deadlines ticking. If you already own and are considering a refinance, the same documents are worth pulling again — associations change, and it’s been a while since most owners looked at them closely.

How this affects your mortgage — and your future refinance

A special assessment — or pending litigation — isn’t just a cost concern. It can directly affect whether your loan closes on schedule. Lenders evaluate the building alongside your personal qualifications, and several of the items above are exactly what shows up in that project review:

• A large, unresolved special assessment can make a building non‑warrantable, meaning it won’t qualify for conventional, FHA, or VA financing.
• Active or pending litigation — particularly construction defect claims — is one of the most common reasons a project is flagged as non‑warrantable. Even litigation that seems minor to the seller can be enough for a lender to decline the project.
• Reserve funding below required minimums is one of the most common reasons a condo project doesn’t pass review.
• If the master policy carries a per‑unit deductible, you’ll be required to carry an individual HO‑6 policy at closing — a cost worth budgeting for early, not discovering at the closing table.
• Higher HOA dues reduce your qualifying power directly, since they count against your DTI ratio — so a dues increase can shrink your budget even though your loan terms haven’t changed.

This project review isn’t a one‑time hurdle at purchase — it happens again every time you refinance. If dues, reserves, litigation, or insurance status have changed since you bought — and for many Washington associations right now, at least one of those has — a refinance can run into the same eligibility questions a purchase would, even though nothing about your own finances has changed. It’s worth a quick check on where your association stands before you assume a rate‑and‑term or cash‑out refinance will sail through.

The good news: non‑warrantable doesn’t mean unfinanceable, whether you’re buying or refinancing. Portfolio loans, jumbo non‑conforming programs, and certain non‑QM options can still work for a building that doesn’t meet standard guidelines — it just changes your loan options and pricing. I’ve covered this in detail, including a full comparison table of financing paths, in my condo financing guide. If a building you’re considering — or already own in — has any flags on this list, especially litigation, it’s worth a conversation with me before you’re under contract, or before you apply for a refinance.

Condo, townhome, or something in between?

One thing that trips buyers up: whether a property is legally a condo or a townhome isn’t always obvious from how it looks. A two‑story, single‑wall‑shared property can legally be structured as a condominium, which brings all of the HOA, reserve, and litigation considerations above along with it — even though it doesn’t look like a typical high‑rise unit. Understanding which structure you’re buying into changes what questions matter most.

Read: Townhome vs. Condo: Which Is Right for You in Washington State?

Frequently asked questions

Do HOA dues count toward my debt‑to‑income ratio?

Yes. Even though HOA dues aren’t part of your mortgage payment, lenders include them in your qualifying DTI ratio alongside principal, interest, taxes, and insurance. Higher dues reduce how much home you can qualify for — whether you’re buying or refinancing.

Can HOA dues increase after I buy?

Yes, and they often do. Boards typically raise dues to keep pace with rising insurance costs and reserve funding needs. Ask about any planned increases — and check recent meeting minutes — before you write an offer.

Can rising HOA dues affect a refinance?

Yes. Your current HOA dues count against your DTI ratio at the time of refinance, just as they did when you purchased. If dues have risen since you bought, that can reduce your qualifying power for a rate‑and‑term or cash‑out refinance — and the condo project itself goes through review again, so changes to reserves, litigation, or insurance status can also come into play.

How do I find out if a condo has a pending special assessment?

Request the HOA’s resale certificate, recent meeting minutes, and current budget before writing an offer. Pending assessments are often discussed in board minutes months before they’re formally announced.

Can a special assessment stop my loan from closing?

It can, if it’s large enough or unresolved and the project no longer meets the lender’s eligibility standards. This is why I recommend checking project status early rather than after you’re under contract.

What percent funded should a condo’s reserve study show?

70% or higher is generally considered healthy. Below 30% signals high special assessment risk. But always check the study’s component list for items due soon — a high overall percentage can still hide an imminent large expense.

Does pending litigation against an HOA affect my ability to get a mortgage?

Yes. Active or pending litigation — especially construction defect claims — is one of the most common reasons a condo project is considered non‑warrantable, which can rule out conventional, FHA, and VA financing. Portfolio or non‑QM options may still be available depending on the situation.

How often does Washington law require a reserve study?

Most associations with significant shared assets must complete a full on‑site study at least every three years, with updates in the years between, under RCW 64.34.380 and RCW 64.38.065.

Is a townhome safer from special assessments than a condo?

Not automatically — it depends on the legal structure and the HOA’s reserve funding, not on how the property looks. Some townhomes are legally condominiums and carry the same considerations.

Whether you’re considering a condo or townhome purchase, or thinking about refinancing one you already own anywhere in Washington, I’m happy to take a look at the HOA documents with you. Reach out — let’s talk it through.