New Condominium Financing Update
2016 Condominium Financing Update:
There are new Condominium Financing Update for 2016. There has been changes that Fannie Mae has made with Condominium Financing Update that may affect condominium home buyers. Most home buyers do not realize this but mortgage lenders view condominiums differently than single family home purchases. For single family homes, the mortgage lenders are primarily concerned with the condition of the subject property and that the property is habitable and in good shape and that the house can re-sell in the event the borrower defaults and needs to go into foreclosure. Condominiums are different and are considered riskier investments for mortgage lenders so it is more scrutinized. Besides the mortgage loan borrower being qualified, the condominium complex itself needs to be qualified and looked at by mortgage lenders.
Condominium Financing Update: Homeowners Association
There are two types of mortgage qualification condominium home buyers need to go through. The first is the borrower needs to be qualified for the home loan and the second phase is that the condominium complex needs to meet the mortgage lenders standards and meet Fannie Mae’s mortgage lending guidelines with respect to condominium guidelines.
A condominium property arrangement is where the condominium owners owns the individual apartment unit and the condominium association owns the land as well as the communal spaces. Since the communal spaces plays an important role of condominium unit owners, the mortgage lenders will need to know specific things about the condominium association and their finances. Many mortgage lenders will not lend on an empty condominium complex where you will be the first to own and move in to the condo complex. They may require a certain amount of condominium units to be closed and occupied prior to processing and underwriting your mortgage loan. There may limitations on how many condominium units a person and/or entity may own in the particular condominium complex. Mortgage lenders may deny the condominium complex mortgage loan application if a substantial number of condominium unit owners are behind on their condominium homeowners association dues.
Condominium Review Process
Condominium home buyers who applying for a mortgage loan with a lender will be provided a condominium questionnaire form by the lender to have completed by the condominium homeowners association manager. The condominium questionnaire’s purpose is to make sure that the condominium complex is in good condition and the financials of the condominium homeowners association meet Fannie Mae and/or Freddie Mac as well as the mortgage lender’s mortgage lending guidelines and requirements. Condominium reviews are set into two different types of condominium reviews: A Full Condominium Review and Limited Condominium Review. The difference between the full review and the limited review is how thorough the review process is and the documents that will be required by the condominium homeowners association complex.
Limited Review Versus Full Review: Condominium Financing Update
Limited Condominium Review on a condominium requires much less documentation from the condominium homeowners association than would a full condominium review. Whether a limited review is requested or full review is requested by your mortgage lender will depend on the down payment on the condominium purchase and whether the condominium purchase will be the primary home, second home, or investment home.
Condominium Financing Update with Fannie Mae and Freddie Mac require a 10% down payment for limited review. Any condominium home buyers putting less than 10% down payment will require a full review on owner occupant primary residences. To get just a limited review on a second home, Fannie Mae and Freddie Mac will require a 25% down payment. Investment property condominium purchases are always full reviews.
Difference Between Limited Review And Full Review
All condominium mortgage loans will require certain documentations from the condominium homeowners association. With a limited review, information on any commercial space and ownership distribution needs to be provided as well as any pending litigation issues and/or larger building and code violation issues. Certain specialty insurance policies on the condominium complex may be required. There are restrictions on the amount of income the condominium homeowners association can make from non-business operations.
With a full review, there are additional documentation required besides the items needed on a limited review. With full reviews, certification from the people managing the condominium complex is required. A complete condominium questionnaire is required. A copy of the budget and financials of the condominium complex is required. They may be more documentations besides these that may be required depending on who your condominium mortgage lender is.
Difference Between Warrantable Condo And Non-Warrantable Condo
Condominium home buyers who can only qualify for FHA Loans can only purchase a condominium unit where the condominium complex is FHA Approved. The condominium home buyer can have a solid pre-approval with a FHA Loan, however, if the condominium complex is not FHA Approved, then the mortgage lender will not lend on the condominium purchase. Mortgage loan borrowers who qualify for conventional financing on condominiums can only qualify for warrantable condominiums which means that the condominium complex meets Fannie Mae and Freddie Mac guidelines. Warrantable condominiums are condominium complexes that have more than 51% of the condominium unit owners who are owner occupants. Condominium projects that are 51% or more investor owned are considered non-warrantable condominiums and you cannot qualify for a condominium purchase with conventional financing on non-warrantable condominiums. There is financing available on non-warrantable condominiums, however, they are non-conforming loans and are call portfolio loans where the mortgage lender keeps the loan in-house and does not sell it on the secondary market.
If you are interested in warrantable and non-warrantable condominium financing and/or condotel financing please contact me at 262-716-8151. My team of loan officers and I are available 7 days a week, evenings, weekends, and holidays to answer any questions you may have on condominium financing.