https://www.wsj.com/articles/mortgage-rates-hit-4-99-dropping-below-5-for-first-time-since-april-11659621623?st=rl1cpfet6nerj0l&reflink=desktopwebshare_permalink Mortgage Rates Drop Below 5% for First Time Since April Rates hit 4.99%, falling…
Is it harder to get a loan on a condo than a regular home?
Yes, it is harder to get a mortgage for a condo. When you buy a condominium, you’re purchasing one living unit that is located on a common piece of property that is co-owned by a number of other condo owners. You purchase the individual living space as well as a portion of the land, property, and amenities. In other words, a condo owner shares ownership of just about everything located on the property with others, including the roof and staircases. Each unit effects the whole project, so if several owners are unable to make payments or if they’re vacant because of things like foreclosure or failure to sell, the other units will lose value. Additionally, the HOA won’t get all the dues it expects, which puts the entire building at risk when it comes to things like maintenance and upkeep. This can create a serious domino effect.
When approving a condo loan, the lender wants to make sure the building is financially stable. The financial stability of a condo community depends on the owners paying their bills therefore lenders tend to view condo loans as a riskier investment than a house. After the foreclosure crisis, many condominiums faced financial difficulties because owners didn’t pay their dues. Most lenders didn’t want to risk lending to condo buyers. Lenders that offered condo financing asked for higher down payments and imposed restrictions that were more stringent than Fannie and Freddie required.
Some condo buildings don’t meet Fannie and Freddie’s requirements. The most common reasons today that consumers cannot finance a condo is the financial stability of the condominium, presale requirements, and the minimum percentage of units in a condominium that must have been sold to owner-occupants (and not to investors). Lenders want to see that the condo association saves at least 10 percent of its revenue in a reserve account. They generally do not want to lend in a building where a single investor owns more than 10 percent of the units. To see if a particular condominium is on the Fannie Mae Approved list you can click here . To see the Fannie Mae questionnaire click https://www.fanniemae.com/content/guide_form/1076.pdf
If you want to buy a unit that’s not on the approved list, you may be able to request a “limited review.” A limited review is a questionnaire that is completed by the property manager or head of the homeowners’ association. To be eligible for a limited review, you must put down at least 10 percent for a primary residence or 25 percent down for a second home.
Some limited review criteria are:
• Commercial space can comprise no more than 25 percent of the total square footage
• At least 10 percent of association dues must be allocated to reserves
• Fewer than 15 percent of units must be in arrears with their dues
• More than half of the units must be owner-occupied
• Insurance must meet guidelines
• There can be no lawsuits
• No single entity can have high ownership concentration
• Minimum square footage per unit is 400 square feet
• Condominium rentals are not advertised with daily rentals or other hotel type amenities.
• No more than 15 percent of association dues delinquent more than 30 days
Condo Financing is easier now than it used to be.
You may have heard that it is extremely difficult to get approved for a mortgage to buy or refinance a condominium. That was the case for several years after the housing market crashed, but lenders finally have loosened the rules on condo financing. Borrowers seeking to get a condo loan these days will find more lenders to choose from and more condominiums that are eligible for financing,
Lenders are now more flexible when analyzing condominiums’ financial stability. In 2014, Fannie issued new guidelines to lenders allowing them to issue loans in developments where up to 15 percent of the owners were 60 days past due on monthly payments. The threshold had been 30 days. Another change made it easier to finance condos in new developments. The new Fannie guideline reduces the presale requirement from 70 percent of the project to 50 percent. In addition, Down Payments have been reduced in some areas that were previously higher.
New Outside-the-box loans loans for condos
When a condominium doesn’t meet the requirements of Fannie or Freddie, the gap is filled by lenders who keep the loans instead of selling them. Such mortgages are called portfolio loans.There are several options that have now become available for portfolio lending. These lenders are willing to lend outside Fannie and Freddie’s box of requirements, and the loan terms are comparable to conventional loans.
How much money do you need to put down on a condo?
There are Fannie Mae loan options today that only require 3% Down on a condo that is being purchased for primary occupancy. However these are only available to the most highly qualified buyers. The more a borrower puts down, the better the terms received 10% down to 20% down or more will get a lower interest rate. For out of the box portfolio loans on condos, 20% down or more is the norm.
Are Mortgage Rates higher for condos?
Yes, mortgage rates are typically .25% to .50% higher than the best rates. This is because Fannie Mae charges a price increase for the higher risk they are taking on a condominium.
Does it take longer to get a loan on a condo?
Yes. The reason it takes longer is there is a questionnaire that needs to be completed by the Condo Association. The Association can charge the prospective buyer up to $500 to complete the form. Sometimes they take up to 10 business days to complete the form. The questionnaire will tell the lender if the property meets Fannie Mae and Freddie Mac guidelines. So a mortgage approval on a condominium might take about a week longer to process.
All of these things can make getting a mortgage for a condominium a bit more difficult than getting a loan for a single-family home. But now that you have read this you are a little more prepared.
Sr. Loan Officer
Mortgage Lending Associates, Inc.