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Understanding Condominium Financing

It's more important then ever to understand your financing options. In light of all the changes in the banking and mortgage industries, it is now equally important that WHAT you are buying is a "qualified" property, as well as your financial ability to buy that property.

If you are looking at property that is held in a condominium regime, it is essential that the entire building, and their Rules, Regulations, By Laws, etc. have been approved by the lender. Most lenders will sell the loans they make on the secondary mortgage market (Fannie Mae, Freddie Mac), and if the condominium documents have not been reviewed and approved, lenders will deny these loans based on the building, and not the credit worthiness of the borrower.

You need to work with an agent who understands the condominium market, and who can assist you with your financing. Many buyers have found they have gotten very deep into the buying process, to later learn that they can not obtain the loan they were looking for due to the condominium regime and how their By-Laws were written.

In Ocean City, Maryland, there is a list of pre-approved buildings that will meet Fannie and Freddie guidelines. That doesn't mean that you can not get a loan in a building that is not on the list, however, you need to work with someone who knows how to make that loan work.

Posted by Monica McNamara on 12/28/2008 02:38 PM

Comments (2)

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2 Comments on Understanding Condominium Financing

JAN

Can you elaborate a little more? I have lost several deals on condos with too high of an investor ratio in the past. I know they just changed the criteria for 1st time home buyers and 2nd homes but what about investors? How do you "make the loan work" for them. If the ratio is over 49% who wants to do these mortgages?

JAN

Condos have become even more of a strange bird in the lending world. One of the most important things I attempt to do in working with buyers is to have them work with a lender that I KNOW can deal with a condominium product. Many of the large institutional lenders don't do enough of these type of loans, and have no programs for these purchases. These big banks tell the buyer, yes, we can do this loan no problem, then they start getting into the process ,i.e. they need a "Type A" letter completed from the building, then realize that there are too many of one owner in the builder, or too many units used as rental properties, or the project is not "substantially" complete, (that is super subjective) etc. The lender then says to that borrower, so sorry we can't make a loan to that particular property. I've had large lenders drop that bomb to the buyer as recent as days prior to settlement.

Fannie Mae has just instituted even more stricter guidelines regarding their underwriting procedures on condos. The "street interest rate" they quote, is never applicable for condos. They require a minimum of 25% down in some circumstances, require a minimum credit score for the borrower, and add 3/4 of a pre-paid point to the rate.

I have found that most of my loans are made by local banks in my area, with experienced underwriters who can explain everything up front to a buyer.

I can still get a purchaser a 90% loan on a condo. Having said that, I believe it's because I work very closely with a few lenders that really understand how to make that work.

Good luck.

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