The past week it seems like I’m getting asked more questions about condominiums and financing than any other property type.
A warrantable project is simple, it just infers that it meets the guidelines for Fannie Mae and therefore suitable for their financing. This is a fairly simple process for lenders to quickly let you know. They will ask for the HOA to fill out a Condo questionnaire, and they will ask for a copy of the budget (reserves are an important line item -10% required) a current balance sheet, copy of the full property insurance and liability policy.
But the question I been asked is why does this approval vary where one will say this complex is approved and another will say it’s a condo-tel.
When looking a project/complex, look to see is there a rental desk on site, does the HOA participate and/or earns money from rental of the individual units. These are traits of a condotel. We do have lenders who lend on condotels and it’s on a loan by loan bases. Even for jumbo loans up 80% for second homes.
Although some of the condominium property requirements may appear arbitrary, the rules exist to protect both the borrower and the lender. Rules are different for small properties (two to four units) versus large properties; there are different rules for new construction and new conversions and the rules can change with jumbo loans versus conventional financing of 417k or under.
Lenders want a high level of owner occupancy in all condo associations. Owner occupants/second homes are considered more likely to maintain their property, pay all fees on time, and manage assessments or fee increases if required. Statistically, investor owners will stop paying their fees and even the mortgage if their personal finances get snarled, which can weaken a condo association.
Additionally the lender needs to verify that all condo fees are collected and up to date, no more than 15% of the total units can be past due on their condo fees.
They will verify that there are no pending law suits against the association that are not covered by the master insurance policy or any other issues that could negatively impact the condominium finances.
When lenders receive the appraisal, they look for few more items, zoning, is it in compliance, flood zone, does the numbers listed by the appraiser match questionnaire given by the HOA. Looking to see does the HOA have full ownership of the facilities.
Also many lenders offer limited review and this requires a little more down payment but in many cases more attractive for the buyers because it allows for the lender to require fewer items from the HOA and the buyer.
There seems to be a lot of moving parts when financing a condominium, especially if it’s your first time to buy a condominium, but there skilled people in our area that can make this process go smoothly. They can quickly answer the questions of the required down payment, how much reserves you need, 30 year fixed vs. arms.
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