This blog was inspired by a blog Dick Greenberg posted last Thursday titled "TBT - A Bad Times Flashback". The blog was about a bad experience Dick recently had with a "non-warrantable condo". There are many reasons for why a condo might be considered a "non-warrantable condo", but one of of the more common reasons why a condo is considered a "non-warrantable condo" is because of the Condo Owner To Investor Ratio Requirements.
Depending on the Loan Program generally at least 51% of the condos in a condominium complex have to be owner occupied. However, because of all the issues the Housing Industry went through after 2006, in 2008 Fannie Mae made an exception to their Condo Owner To Investor Ratio Requirements rule, and eliminated their Condo Owner To Investor Ratio Requirements. This exception is still in effect today.
The ratio between condos that are owner occupied and those non-owner occupied (rentals) have always been a problem for lower price condos not being able to obtain financing. The reason for this is that the lower the price of the condo, the more it is attractive to investors, because they can get a very good rate of return on their investment. As more and more condos in a complex are purchased by investors, the investor ratio goes up, and prior the Fannie Mae's exception, once the investor ratio went over 50% the condo became a "non-warrantable condo".
Besides no longer having a owner to investor ratio, Fannie Mae also has an advantage over other loan programs like VA, and FHA who require a whole condo complex to be certified and be on their approved condo list. Fannie Mae does not have certification requirements like VA and FHA. Each Condo basically stands on its own, and just has to go through a Spot Approval Process.
Presently Fannie Mae only requires the owner to investor occupancy ratio be 51% IF the mortgage is going to be an investment loan (non-owner occupied). But if the condominium is an existing condominium complex, and the Borrower is going to occupy the unit, or use the unit as a second home, there are NO owner to investor ratios. The Fannie Mae 2008 exception was a huge change, and made finance obtainable for many Condominium Complexes.
Fannie Mae also recognized many Condominium Complexes were experiencing a higher number of Real Estate Owned (REO) Units. So in 2008 Fannie Mae further changed Condominium Owner Occupancy Ratio Requirements to allow REO units on the market for sale as owner occupied units (not rented) to be counted as owner occupied units in the owner to investor ratio. Again this was a huge change, and one that benefits those trying to obtain financing in a condo complex with a high owner to investor ratio.
Unfortunately not all Loan Originators are created equal and are not aware of these changes. In fact there are Lenders and Underwriters who are not aware of these changes, and as a result loans that should be approved are not.
As I mentioned at the beginning of the blog their are many reasons why a condo might be might be considered a "non-warrantable condo", and in Dick Greenberg situation there were additional reasons why the condo was considered "non-warrantable". However, Fannie Mae's elimination of their Condo Owner To Investor Ratio Requirements, has eliminated one of the big obstacles in obtaining financing for a condo complex with a high number of investor owned condos.
Info about the author:
George Souto NMLS# 65149 is a Loan Originator who can assist you with all your #FHA, #CHFA, and #Conventional #mortgage needs in Connecticut. George resides in Middlesex County which includes #Middletown, #Middlefield, #Durham, #Cromwell, #Portland, #Higganum, #Haddam, #East Haddam, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or firstname.lastname@example.org