6
Times-Call / Home & Real Estate Weekly
W:332.41pt H:737.816pt Graphics : Ads : 165537+
April 23, 2011
Condo loans challenge buyer and association down payment of 3.5 percent. FHA approval depends on the financial health of the condo, so the condo association needs Borrowers run into two problems when to prove that (it has) adequate insurance, a getting a mortgage on a condominium: high costs and strict standards that make it budget with reserves, no pending lawsuits and no anticipated special assessments.” hard to qualify for a loan. Wilburn says condo buyers should These issues beset condo buyers who check whether a building is approved for want to get mortgages, as well as people FHA loans. If not, they can ask the lender who already own condos and want to refito see if it meets Fannie nance. Mae and Freddie Mac “Condos are like the caCondo loans face guidelines. Buyers can ask nary in the coal mine, a two obstacles. First condominium managers if leading indicator of the the borrower has they have recently comhealth of the real estate pleted a homeowners’ asto qualify, then the market,” says John Mcsociation certification or Clellan, a branch manager condo association questionnaire, which prowith Supreme Lending in has to qualify. The vides information on conAustin, Texas. “Recently, do fee delinquencies, inborrower has little lenders’ biggest losses surance and other factors came from condos, so they or no control over that affect loan eligibility. are viewed as risky.” the latter. “Even if the condo Some lenders reject conmeets the Fannie Mae do loans altogether. guidelines, buyers may Condo loans face two obstacles. First the borrower has to qualify, then the condo find that they must make a down payment of 20 percent or more because mortgage association has to qualify. The borrower insurance companies are less willing to has little or no control over the latter. provide mortgage insurance on condo “Condo financing is very situational beloans, since they are considered riskier,” cause it depends not only on the borrower, Wilburn says. “In fact, most mortgage inbut also on the project itself,” says Matt surance companies won’t insure a Florida Ostrander, CEO of Parkside Lending LLC condo. It may be easier in other markets.” in San Francisco. “The guidelines have McClellan says a local lender will know tightened because lenders want to see a fiwhich local complexes have FHA or Fannancially healthy condo development. nie Mae approvals. “Have a list of places They want to see a higher concentration of you like and check the status of their apowner-occupants and they want to see that proval” with the lender, he says. delinquency rates on condo fees are low.” Condos not approved for FHA or Fannie Lenders follow condo-mortgage guideMae financing are known as “nonwarlines from the Federal Housing Adminisrantable” and offer few options for buyers tration, Fannie Mae and Freddie Mac. or refinancers. Among Fannie Mae’s requirements: “Buyers can either pay cash or they can • More than half of the condo units look for a local bank that is willing to lend, must be owner-occupied. but they should be prepared with a hefty • No owner may own more than 10 perdown payment of 50 percent or more, have cent of the units. excellent credit and still be prepared to pay • No more than 15 percent of owners a higher interest rate,” McClellan says. can be delinquent on condo dues. “They should expect to pay as much as 7.5 • All amenities must be completed if the percent when rates are 4.5 percent for othdevelopment is more than 12 months old. er loans.” • Buyers who make a down payment of Homeowners interested in refinancing less than 25 percent will pay an additional first will need to face the potential problem 0.75 percent of the loan amount at the of a lack of equity, since condo values have closing or a higher interest rate of about dropped in many areas. 0.25 percent. “Condo owners can ask their manageThe FHA has much friendlier down payment company if their complex is FHA- or ment requirements, but strict guidelines Fannie Mae-approved, and if not, they may for condo associations. want to contact a local lender to see if they “It’s a misconception on the part of the start the process for obtaining an appublic that you can’t buy a condo without proval,” McClellan says. “It’s in the best a big down payment,” says Ed Wilburn, a interest of all the owners to do what they mortgage banker with FEMBi Mortgage in can to meet FHA guidelines, since that apMiami. “The rules are stricter now, but if proval can increase the value of all the you find a building that has already earned homes in the development.” an FHA approval, you can get in with a By Michele Lerner bankrate.com