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New Condominium Financing Challenges

By
Real Estate Agent with Elite Home Sales Team OC BRE# 02066030

In order to obtain financing for buyers on condominiums, lenders generally require a Homeowner's Association Certification to evaluate the financial feasibility of the development. When processing a loan on an existing condominium development most of the concerns are in the following areas:

  • 1)    Is there litigation in the development?
  • 2)    What percent of the homeowners are delinquent on their HOA monthly dues?
  • 3)    How many investors own units in the development?

FHA, VA, FNMA and FHLMC all have major issues with litigation and request a more in depth review of the association's budgets in those cases. The allowable maximum HOA delinquency rate is 15% for FHA and exceptions can be made to 20% on FNMA/FHLMC loans. The investor ratio to occupancy is 50% for FHA and 51% conventional.

We have two types of HOA Certifications, full and limited. A full certification asks all three questions above but a limited certification asks only if there is litigation in the development. This means in many cases we request only the limited certification and the delinquency and investor ratios are not furnished by the HOA. Therefore, the delinquency ratio and the investor ratio not considered in the underwriting of the loan file.

When financing with FHA and VA a full certification is always required. A limited certification is used on conventional loans when the buyer has a 20% down payment on a primary home and 25% down on a second home. On investor financing a full certification is always required.

If you have any questions contact Elite Home Sales Team your San Clemente Realt Estate Experts.

Comments (6)

Paul Walker
Equity Fifty Five Realty, LLC - Scott AFB, IL
Scott AFB IL Area Realtor

Good Post and full of valuable information for financing a Condo, using FHA or VA financing. Condos can be very difficult to finance it seems, especially in newer developments, when there hasn't been any or many sold comps, and the developer hasn't done all of their homework on the needed certification process for lenders.

May 23, 2010 08:26 AM
Elite Home Sales Team
Elite Home Sales Team OC - Corona del Mar, CA
A Tenacious and Skilled Real Estate Team

Thank you for the compliment.  It is difficult and may get more difficult as we go along.

May 23, 2010 08:31 AM
Heather Tawes Nelson
Live Better in Arizona - Scottsdale, AZ
Associate Broker, ABR, CLHMS, CRS - Scottsdale, AZ

Thank you for an informative post on the challenges of condo financing and how you are able to assist clients looking to purchase condos. In Scottsdale and Phoenix, where condos make up a large percentage of the housing mix, we too are seeing frequent issues with condo financing...

May 28, 2010 06:55 PM
Elite Home Sales Team
Elite Home Sales Team OC - Corona del Mar, CA
A Tenacious and Skilled Real Estate Team

Heather,

Thank you for the comments and I am glad they may help for the condo buyers.

May 29, 2010 03:16 AM
Regina P. Brown
MBA Broker Consultants - Carlsbad, CA
M.B.A., Broker, Instructor

Mark Paulson and Tim Lorenz:  great advice for every market!  Please continue to keep us updated.

 

May 21, 2012 04:55 AM
Elite Home Sales Team
Elite Home Sales Team OC - Corona del Mar, CA
A Tenacious and Skilled Real Estate Team

Thank you we will do our best to keep you informed.

May 21, 2012 07:31 AM