This BLOG On Limited Review Versus Full Review Condo Purchase Was UPDATED And PUBLISHED On March 8th, 2020
Due to the real estate and mortgage meltdown of 2008 and the historical number of foreclosures throughout the country, new FHA, Fannie Mae, and Freddie Mac mortgage guidelines have been implemented on condominium unit purchases. There are Limited Review Versus Full Review Condo Purchase rules and regulations for condo unit borrowers:
- Condo loans are much tougher than single-family home mortgage loans
- Not only do borrowers need to be qualified and pre-approved but also the condominium complex
- The condo project needs to be approved and meet FHA, VA, Fannie Mae, and/or Freddie Mac mortgage lending guidelines
Condo Buyers can have 800 plus credit scores, have strong job stability, very low debt to income ratios, and ample reserves:
- but if the condominium project does not meet FHA, VA, Fannie Mae, and/or Freddie Mac guidelines, they cannot get their condominium financing
- They may get a portfolio lender to approve their condominium purchase loan
- However, all condominium lenders consider condo mortgage loans very risky
- Their mortgage lending standards are much more strict than single-family homes
Due to the many hurdles involved with condominium financing, many condominium unit sellers have only allowed cash-only buyers to see their condo units. In this article, we will discuss and cover Limited Review Versus Full Review on condominium purchases.
FHA Condo Purchase
Borrowers approved for FHA Loans and cannot qualify for a conventional loan, choices in shopping for the right condo unit may be limited.
- FHA will only finance FHA approved condos
- FHA spot loans are no longer in existence
- More and more condominium complexes who were FHA approved are not renewing their HUD certification status due to the high renewal costs
- Borrowers only approved for FHA loans need to make sure that realtor not only checks with HUD-approved condominium list
- But also to contact the condo project’s condo association and make sure that the condo project is HUD-approved
- HUD is the parent of FHA
Fannie Mae And Freddie Mac Condo Lending Guidelines
For a condo unit to be eligible for conventional financing, mortgage lenders need to make sure that the condominium complex qualifies Fannie Mae and/or Freddie Mac lending guidelines. This because ultimately these two mortgage giants will buy the condo loans originated and funded by condo mortgage lenders:
- Lenders need to go through a review process
- It involves the condo homeowners association financial review
- Appraisal of the subject condo complex and condo unit is required in order to make a determination if the condo complex and unit meets the eligibility requirements for financing
- There are two types of reviews that need to be done
- Either a full review of the condominium and its financial needs to be performed or a limited review of the subject property
- If a condo buyer puts the minimum 5% down payment on a condo purchase and has less than perfect credit and lower reserves, a full review of the condominium project may most likely be required
- Minimum down payment for a second home condo loan is 10% down payment
- Minimum down payment for an investment condo loan is 15% down payment
Full Review On Condo Purchase
The criteria for a full review is that the condominium needs to have 51% or more of its units be an owner occupant. This means it needs to be a warrantable condominium unit.
- No single person or entity can own more than 10% of the condominium units
- Maximum commercial space in the condominium project cannot be more than 20% on mixed-used condominium projects
- Litigation is extremely frowned upon and a condominium project with major pending litigation will most not likely be approved
- If there are litigation due to defects in construction and/or structural issues, the condominium project will definitely not be approved
- Full financials and declarations of the condominium association will need to be provided to the mortgage lender
- Mortgage lenders will want to see line items for cash reserves with a minimum of 10% of assessments and income being collected by condo unit owners
Mortgage lenders do not want to see any more than 15% of the condo homeowners association dues delinquent for more than 30 days.
Renting Condominium
Condo unit rentals cannot be advertised as daily rentals like a hotel or motel.
- For rentals, it needs to be a minimum of 3-day rentals
There must be sufficient insurance coverage with regards to the following:
- hazard insurance
- flood insurance
- liability insurance
- coverage of the individual condo unit owner, HO6
The difference between the Limited Review Versus Full Review Condo Purchase:
With a full review, the full condo docs consisting of compliance is required:
- by laws of the condominium associations
- restrictions on the right to sell or rights of first refusal
- any amendments to the original condominium documents
- legal rights of guarantors
- rights of first mortgagees
- any unpaid fees and dues need to be provided
Anyone purchasing a condo unit that is less than 400 square feet will be required to have the mortgage lender do a full review.
Limited Review Versus Full Review Condo Purchase Guidelines
Limited Review Versus Full Review Condo Purchase is the way to go for condominium unit buyers.
- Difference between Limited Review Versus Full Review Condo Purchase is a full review can take time and can be costly
- If the condo mortgage underwriter finds any flaws in the condo association’s financials and/or if there are litigation issues, borrowers can get denied
The difference between the Limited Review Versus Full Review Condo Purchase:
- to pass a limited review, the condo complex cannot have any more than 10% of the units owned by any one individual and/or entity
- If the condo complex is a multi-unit condo project, no more than 20% can consist of commercial space
No structural and/or construction defects can be active, present.
- The individual condo unit needs to be at least 400 square feet or larger
- Not more than 15% of the condo homeowners association dues can be delinquent for 30 days or more
- The condominium homeowners association cannot allow its condominium owners to do daily rentals like a hotel and/or motel and cannot be advertised as such
- For condominium unit owners wanting to rent, they need to have a 3-day rental minimum
Difference between Limited Review Versus Full Review Condo Purchase is to be eligible for limited review for a condominium buyer, they need to put a minimum of 10% down payment for an owner occupant home, and 75% down payment for a second home financing. Condo mortgage lenders may require a larger down payment for an owner occupant condominium unit buyer depending on circumstances. Investment condominium units do not qualify for limited review and need to go through a full review.
