Fannie Mae is making a number of guidelines pertaining to condos. Below is a summary of recent implementations:
Interest Rate Adjustment
Effective immediately, Fannie Mae has implemented a .75% pricing adjustment for all loans >75% LTV secured by a condominium. This .75% adjustment can be paid in the form of discount points or by the borrower taking a higher interest rate to offset the cost. Mortgages on condos with LTV's <75% will not be impacted. This adjustment does not apply to PUD's, only to projects legally classified as being condominium ownership.
Hazard Insurance Requirements
Fannie Mae now requires that lenders verify that hazard insurance for all condominium projects with attached units, including two- to four- unit projects, covers fixtures, equipment, and other personal property inside individual units if they will be financed by the mortgage. The updated policy now requires that the borrower obtain a "walls-in" coverage policy (commonly known as HO-6 policy) unless the lender can document that the master policy provides the same interior unit coverage. The master policy must include replacement of improvements and betterment coverage to cover any improvements that the borrower may have made to the unit.
The HO-6 insurance policy must provide coverage in an amount that is no less than 20 percent of the condominium unit's appraised value. The standard requirement for a 5 percent deductible applies.
Delinquent HOA Dues for Units in Attached Condominium Projects
Fannie Mae is updating its delinquent HOA dues policy for the review processes to require that no more than 15 percent of the total units in a project can be 30 days or more past due on the payment of their condominium/association fee payments. This new policy applies to the review of both new and established attached condominium projects.
Clarification of Owner-Occupancy Ratio Requirements
Fannie Mae requires that established condominium projects consisting of attached units have an owner-occupancy ratio of at least 51 percent at the time the loan is originated (purchase or refinance) if the mortgage loan being delivered is secured by an investment property. Established projects where borrowers will occupy the unit or use the unit as a second home are not subject to any owner-occupancy ratios.
Due to current market conditions, many condominium projects are experiencing higher numbers of financial institution- owned REO units, which many lenders may be counting as non-owner-occupied under Fannie Mae's current requirements.
Fannie Mae is clarifying its condominium project owner-occupancy ratio policy to include REO units that are for sale (not rented) as owner-occupied units in the owner-occupancy ratio.
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