In our area, condos make a majority of sales. With the recent lending climate, condos financing has posed its fair share of problems. The two main problems are high costs and strict lending standards. Not only does the current buyer have to qualify, but so does the association. These problems not only apply to current sales, but to existing homeowners who want to refinance for a lower down payment as well.
“Condos are like the canary in the coal mine, a leading indicator of the health of the real-estate market,” says John McClellan, a branch manager with Supreme Lending in Austin, Texas. “Recently, lenders’ biggest losses came from condos, so they are viewed as risky.”
Condo buyers would eliminate a lot of headaches by checking to see if a building is approved for FHA loans. If not, then they can ask the lender to see if the building meets Fannie Mae and Freddie Mac guidelines. The association will fill out questionnaires providing information on HOA fee delinquencies, insurance and other factors that affect eligibility for loans.
Here are a few of Fannie Mae’s guidelines:
- More than half of the condo units must be owner-occupied.
- No owner may own more than 10% of the units.
- No more than 15% of owners can be delinquent on condo dues.
- All amenities must be completed if the development is more than 12 months old.
- Buyers who make a down payment of less than 25% will pay an additional 0.75% of the loan amount at closing or an interest rate that is about 0.25% higher.
Buying a condo without meeting these guidelines are impossible, but it does bring up some challenges. Being prepared ahead of time helps eliminate of majority of these lending headaches.