Good Evening, AR!
We all know that the Federal takeover of U.S. Mortgage Investors and Guarantors Fannie Mae and Freddie Mac early last week had a positive impact on mortgage interest rates very quickly. On Monday alone, average rates for 30-year fixed rate loans here in Chicago dropped nearly 0.5% on the news.
What you did not hear is that only the most credit qualified buyers, with larger down payments, get these primo rates. Fannie and Freddie fees for borrowers with lower money down, or with less-than-top FICO Credit Scores, have to pay more. Sometimes, as high as the rates in place before the takeover.
The problem is especially pronounced in the condo market, and we're seeing that on condos for sale in Chicago.
Just over a year or so ago, condo buyers had many options for mortgage loans when buying their new condo. Many could buy with little or no money down - some could even qualify for greater-than-100% financing, where the lender would front closing costs, or allow the buyer to take a cash credit at closing.
Today, most of these high-leverage loan programs have vanished. For those with little down payment funds available, the only option is an FHA-Insured Loan, which will require a minimum 3.5% down, as of October 1st.
FHA, however, requires certain conditions for condos before they approve a loan. Condo buildings need a minimum of 4 units, so small condo complexes will not qualify. The association documents cannot have a "Right of First Refusal," where the condo board can refuse a sale and purchase the unit, on behalf of the board, instead.
Condos must be on the FHA-Approved Condo List to qualify, or pass a Spot Approval for potential buyers to qualify for financing. Owner Occupancy Rates need be high, and at least 90% of the units must have been sold (unless a new construction project has been approved by the FHA).
For less-than-20%-down-payment borrowers not using FHA, qualification for Private Mortgage Insurance is required. However, several of the major PMI Companies classify the Chicago area as a "Declining Market," and may require an additional 5% down to buy. Condo buyers need to have this additional 5% in reserve, just in case the down payment premium is required.
Often, PMI companies apply their own close scrutiny to condo rules and budget figures, and may pass on certain condos they feel offer too much risk for the loan.
Even buyers looking apparently stellar, with a 20% down payment, sometimes face hurdles on condo loans.
Several weeks ago, our Team sold a high-end condo in the River North Neighborhood of Chicago to a successful dentist, earning a high-six-figure income, with excellent credit. However, concerns the lender raised about the condo association's financial statement forced her to add another 5% to her down payment - on the day scheduled for her closing! Luckily, she had the required additional funds available.
Despite the huge inventory of condos for sale in every Neighborhood in Chicago, and falling prices plus strengthened buyer incentives, it's often the stringency of the rules for financing that places hurdles on the way to a successful condo closing.
For more, please read our post this afternoon via BlogChicagoHomes.com, with a link to Marilyn Kennedy Melia's story in today's Chicago Tribune Real Estate Section.
DEAN & DEAN'S TEAM CHICAGO
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