A large portion of condo purchases in the last five years has been rentals, and second homes.  A large percentage of the homes in foreclosure or currently in default in the U.S. are condos.  If the property is not the borrowers' primary residence, they are less likely to make the payments when times get tough because their first priority is the mortgage(s) on their primary residence. This makes condos the riskiest property type for lenders and their investors.

Fannie Mae just announced that because of the additional risk for this property type they are adding a ¾ point fee (as a % of the loan amount) for all condo loans effective April 1, 2009.  This applies even if the borrower has an 780+ FICO credit score and a 25% down payment.  The ¾ point fee will be added into the interest rate and the result is a significantly higher rate than a single family residence (SFR).  At this time, FHA loans do not have a scheduled increase in their fees/rate for condos so many condo loans will simply move from Fannie Mae and Freddie Mac to FHA. I would guess that eventually FHA will follow suit and have an increase for condo loans as well.

However, the downside is to get a FHA loan on a condo, the condo project must be approved by FHA.  Few of the existing condo projects are approved by FHA and getting FHA approval is somewhat difficult, expensive for the borrower and time consuming. I've just recently had a condo that needed a "spot" approval and it cost the borrower over $400.00 to be completed.

If you are considering purchasing a condo as your primary residence you need to do it quickly before the price increase takes effect.

Gerard Ladalardo, CMPS
gerard@caloanpros.com
www.caloanpros.com