Condo PUD Loan Guidelines

 Condo PUD  Loan Guidelines are established by Fannie Mae and FHA.

As opposed to a single-family dwelling in a subdivision, condos or PUD units are highlighted by "Ownership of a unit, interest in common elements, mandatory homeowners' association membership, and documents defining/restricting usage of the unit or common elements (CC&R's). Before listing or making an offer on a condo or PUD, it is important to understand any loan restrictions that may derail your deal.

"New" condo projects and "existing" projects have 2 separate sets of lending guidelines per Fannie Mae.  Neither can be manufactured housing. 

A new condo project is defined as:

••      fewer than 90% of the total units in the project have been conveyed to the unit purchasers;

••      the project is not fully completed, such as proposed construction, new construction, or the proposed or incomplete conversion of an existing building to a condo; or

••      the project is subject to additional phasing or annexation.

Existing condo projects are defined as:

••      at least 90% of the total units in the project have been conveyed to the unit purchasers;

••      the project is 100% complete, including all units and common elements;

••      the project is not subject to additional phasing or annexation; and

••      control of the homeowners' association has been turned over to the unit owners.

New Condos Requiring "Lender Full Review"

New condo projects require a "Lender Full Review" which has strident eligibility requirements.  Here are a couple of red flag requirements.

••      No more than 20% of the total square footage of the project can be used for nonresidential/commercial purposes.

••      No more than 15% of the total units in a project may be 30 days or more past due on their homeowners' association (HOA) dues. For example, a 100 unit project may not have more than 15 units that are 30 days or more delinquent.

••      At least 70% of the units in the Condo Project must have been conveyed or are under contract to purchasers who will occupy the unit as a primary residence or second home.

••      For the EOM Program, the minimum percentage of owner occupied units is 50%."

••      Additional guidelines apply if the condo is a conversion.

Limited Review for Existing Condo Projects

Fannie Mae financing-eligible existing condos would be approved either from being on the approved condo list (https://www.efanniemae.com/sf/refmaterials/approvedprojects/index.jsp?from=hp), or by performing a "Limited Review".  Requirements for Limited Review are:

••      The project must be an established project.

••      Mortgages CANNOT be secured by attached condo units that are investment properties.

 LTVs

For existing condos, LTVs are limited.  For a principle residence, max loan-to-value is 90% (yes, there is still mortgage insurance for condos to 90%).  For a second home, 75% LTV is the limit.  Investment properties cannot utilize the limited review.

FHA

FHA insured financing follows different guidelines than Fannie Mae.  Here is the link for FHA approved condos in Santa Rosa.  https://entp.hud.gov/idapp/html/condo1.cfm .  You can use this website to search approved condos in any city.  It is becoming harder to find a lending investor who will do a formal approval on a condo project that is not on this list, so beware when listing or making an FHA offer on a project not on this list.

PUDs

A planned unit development (PUD) is a project or subdivision that consists of common property and improvements that are owned and maintained by a homeowners' association for the benefit and use of the individual PUD units. In order for a project to qualify as a PUD, each unit owner's membership in the homeowners' association must be automatic and nonseverable, and the payment of assessments related to the unit must be mandatory.

Fannie Mae does not require a lender to perform a review of a PUD project if the mortgage is secured by a detached unit within a PUD.  When reviewing a PUD project with attached units (whether new or established), lenders should determine that the project meets the following requirements:

••      The project does not consist of single-width manufactured housing units.

••      The individual unit securing the mortgage satisfies Fannie Mae's insurance requirements for PUD projects.

••      The individual unit securing the mortgage is 100% complete.

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