Condominium Financing

Condominium Financing Mortgage Lending Guidelines On Purchases

ByGustan Cho
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This BLOG On Condominium Financing Mortgage Lending Guidelines On Purchases Was UPDATED And PUBLISHED On June 6th, 2020

Condominium Financing Update:

There are new Condominium Financing Mortgage Lending Guidelines On Warrantable Condo Purchases.

  • There have been changes that Fannie Mae has made with Condominium Financing Update that may affect condominium home buyers
  • Most homebuyers 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 Guidelines On 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
  • 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 financing guidelines

A condominium property arrangement is where the condominium owners own the individual apartment unit and the condominium association owns the land as well as the communal spaces.

  • Since the communal spaces play an important role in condominium unit owners, lenders will need to know specific things about the condominium association and their finances
  • Many lenders will not lend on an empty condominium complex where buyers 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 borrowers mortgage loan
  • There may limitations on how many condominium units a person and/or entity may own in the particular condominium complex

Certain 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
  • 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.

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

Difference Between Limited Review And Full Review

All condominium mortgage loans will require certain documentation 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 is 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 documentation besides these that may be required depending on who the 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 an FHA Loan
  • However, if the condominium complex is not FHA Approved, then the lender will not lend on the condominium purchase
  • Borrowers who qualify for conventional financing on condominiums can only qualify for warrantable condominiums
  • This 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 buyers 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 called portfolio loans where lenders keep the loan in-house and does not sell it on the secondary market

Condominium buyers are interested in warrantable and non-warrantable condominium financing and/or condotel financingplease contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at gcho@gustancho.com. Our team of licensed and support mortgage professionals are available 7 days a week, evenings, weekends, and holidays to answer any questions you may have on condominium financing.

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