I usually do purchase and refinance mortgages for owners of Single Family Residences in the San Francisco Bay Area, specifically Sunnyvale, Cupertino, and Santa Clara. But this year I have become a (reluctant) expert in getting mortgages for condos. Here are three scenarios where condo buyers and owners need to take extra care.
1. High rise condo refinance in San Francisco. The HOA certificate.
Well we started off OK, but gradually descended into the abyss as more and more facts came to light. Apparently great borrower with good job, plenty of income, and lots of cash in the bank. (The "cash" was the first problem - very thin credit history. But that's for another posting!) Anyway, we got through the rounds and mounds of new paperwork and regulations that came with the new 2010 GFE (Good Faith Estimate), and the new HVCC (Home Valuation Code of Conduct) appraisal rules, and were within spitting distance of the finish line. Then it hit us - the "HOA Certificate". When it comes to condos, lenders want to know a lot about the HOA. Financial status, percentage of occupied homes, percentage of investor-owned homes, etc. An HOA is usually set up by the builder, then handed over to the unit owners when there are enough of them. And that was where we came unstuck. You see the HOA had been handed over to the unit owners in August 2009, and this was March 2010. The lender had a guideline that said the HOA handover must be at least 12 months old. Loan denied. I have another lender who has less strict guidelines, but less good rates, so not much use for a refinance.
2. FHA borrower in Santa Clara/San Jose. FHA and condos.
FHA loans are a great way for first-time home buyers to get into a home. Especially when they don't have much cash to put down. My borrower is single with some savings, but not enough for a 20% deposit. With FHA he can put down just 3.5%. There are other catches of course with FHA in the form of MI - mortgage insurance. With such a small amount of skin in the game, lenders want some insurance against default. So there is both an upfront premium of 2.25% (which can be added to the loan), plus a monthly premium of about 0.5%. So what's the problem? Well to get an FHA loan for a condo, the condo has to be "approved" by HUD. And gusess what? Not that many of them are, or not in the Santa Clara area anyway. You can find out if a condo is HUD approved by going to this website:
https://entp.hud.gov/idapp/html/condlook.cfm
If your condo isn't there, you can't get an FHA loan for it.
3. Newly constructed condo in Santa Clara. Builder "tied" to lender.
Being self-employed, my borrower has a few provable-income challenges. However, working with my favorite lender we were able to get him "pre-approved". He found this really nice new condo and put an offer on it. The builder said "OK, but first you have to get pre-qualified by my preferred lenders, either BofA or Wells Fargo. Of course, you don't have to get the loan with them..." It took a week for BofA to turn him down, and for Wells to try and shove him into an FHA loan with higher payments, and MI. I had him approved for a conventional 5/1 ARM. They've now delayed so much that I can't get a full approval for him (see HOA certificate above, takes 4-5 days to review) and he may well have to pull out before his loan contingency is up. Screw the big lenders. His realtor wasn't too happy either, as the builder shut out buyer's agents.
Although buyers can get good deals on new condos, I'm not sure that doing it without a real estate agent, or your preferred loan agent is in the buyer's best interest.
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