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The Busch Team, Local Mortgage Lender in Metro DC, NW DC (Dupont, Logan, Georgetown)

CONDO GUIDELINES HAVE BEEN TIGHTENED BY GOVERNMENT AGENCIES FANNIE MAE, FREDDIE MAC AND FHA!!!!  WHAT YOU NEED TO KNOW BEFORE BUYING OR REFINANCING THAT CONDO !!!

 

Government run agencies Fannie Mae, Freddie Mac and FHA have all tightened their guidelines on condominium buildings around the country after the fallout from the housing boom. Not only do lenders need to look at the borrowers' strength in getting a loan, but they are now being required to evaluate the condo association and its operations.  These changes are having a significant impact on buyers and current owners looking to refinance in a particular condominium. You may ask "why would it matter if the government agencies want to buy loans in my condominium or the  condominium I am thinking about buying"??? Because loans that don't meet Fannie, Freddie are both harder to finance and more expensive in interest rate and could require a point(a fee of 1% on the balance of the loan).  This could affect the marketability of the unit when you go to sell(which means you may have to sell for less) or if you are refinancing, a higher monthly payment. Not a good thing I must say. The government agencies have implemented requirements with respect to condo master insurance policies, financial statements, percent of delinquent dues each month, ownership breakdown of the units in the condo association, and any litigation issues within the building.  Here is a checklist to review and see if your building meets the litmus test:

 

 

1)Existing buildings can not have 15% or more of the units more than 30 days delinquent on their condo fees in any given month.

 

2)No more than 49% of the units can be of second home nature(not as much of an issue in our area but think about a unit you own or are buying at the beaches).

 

3)No pending litigation allowed.

 

4)The condo can not have weekly rentals offered (ie: condo hotel) nor can the condo be part of or marketed with an attached hotel. These are strictly viewed as condo hotels even if they have separate entrances,.

 

5)Ho-6 insurance(walls in coverage) must be on every unit. Walls in coverage goes beyond the master policy insuring everything that is attached to the drywall or plaster.

 

6)No one person or entity can own more than 10% of the total units in the building.

 

7)No more that 40% of the total units in the condominium can be rented(FHA loans will allow up to 49%)..This called the investor ratio which is just the number of rented units in the building divided by total units in the building. 

 

8)No more than 25% of the building can be of commercial use.

 

9)10% of the total budget must be in cash reserves(for capital expenditures and deferred maintenance..

 

In addition to these agency guidelines if you have less than 20% equity in the condominium unit you must also adhere to mortgage insurance guidelines(we in the lending business call these overlays to the government agency guidelines). Mortgage insurance companies require not more than 30% of the units in the condominium be rented and have their different guidelines on exposure in any one building(usually no more than 25%)( in any one building).

 

 

On top of these more restrictive guidelines, the big banks have their own set of  guidelines that they have to follow which are even more inflexible. You are always advised to speak with a local mortgage lender(a direct lender that funds in their own name and does not broker loans) like First Savings Mortgage before taking a bank rejection on a particular condominium.

 

There is some good news for new construction condominium building that are currently selling, Fanne,freddie and FHA have all dropped their pre-sale requirements(meaning how many units must go under contract before a lender can start allowing buyers to take title and close the loan). Fannie Mae now allows as little as 50% presale from the previous 70% and FHA will allow closings after 30% of the units are presold(January1st, 2011 FHA increases their presale back to 50%).

 

If all else fails there is non-warrantable financing(meaning you can not sell the loan to Fannie,Freddie or Fha). which can be offered thru some local banks and local mortgage companies, They are usually with hybrid ARM's(adjustable rate mortgages with a rate fixed for 3 to 10 years) and higher rates than the government agency loans. Keep in mind that these approvals are not guaranteed and depend on many factors, including specific condo development as well as size of the down payment and need to be evaluated on a case by case basis.

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The Busch Team, Local Mortgage Lender in Metro DC, NW DC (Dupont, Logan, Georgetown)

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