Condominiums and Mortgages

As if qualifying for a mortgage these days was not tough enough with stricter underwriting standards and documentation requirements.  Try qualifying for a condominium refinance or purchase of an existing condominium.  The standards are more difficult because not only do you, the borrower, need to qualify - the association must qualify as well to secure many loan programs.

So how do you know if the condominium you currently own or the condominium you have fallen in love with qualifies?

Let's take a peak at some general terms and guidelines:  (Keep in mind, this is a general overview and will vary based on lender, state, etc)

What is a warrantable condominium?

The term “warrantable” refers to a condominium complex with features that lenders view as favorable in minimizing their risk exposure. Lenders view warrantable features protect a complex from future hazards which pose risk, threatening value of the units. Warrantability refers to the condominium complex as a whole, not the individual units.

Features of a warrantable condominium:

• Most of the units are owner occupied (not rental units)
• On established and existing projects, at least 90% of the units must be sold
• For new and currently converted construction, 70% of the units must be pre-sold (closed or under contract)
• No more than 10% of a project can be owned by a single entity.
• No more than 20% of the project can consist of non-residential space.
• 15% or less of the units can be 30 days delinquent on HOA dues
• The Homeowners Association must have at least 10% of its budgeted income designated for replacement reserves

Other requirements do exist, however, the above conditions are generally deemed the most important to Fannie Mae and Freddie Mac. Also, each lender will have their own overlays related to condominium financing, thus, additional restrictions may apply.

So, how do you know up front if the condominium in question for financing is warrantable?

• Check with the property management company or the real estate listing agent to confirm the complex is warrantable.
• Check the eFannie website to determine if the complex meets project standards. (here)
• Have your lender, who pre qualified you for the mortgage, provide your Realtor with a condo certification form to be filled out by the condominium association/property manager. There may be a small fee for this request, but better to find out early on in the process, than after an appraisal fee, home inspection fee and invested time.

Keep in mind, just because your condominium may not be "warrantable" it does not mean you cannot find financing. There are niche lenders who are happy to finance "non warrantable" condominiums - however, much of the time, these lenders will require a bigger down payment and probably a higher interest rate.

For FHA and VA condo project approvals you can search here:

FHA Approved Condo List

VA Approved Condo List

My recommendation - whether selling a condo, buying, or refinancing - do your due diligence up front, hopefully averting disaster later in the process.

Until Next Time,

Craig Turley

Craig Turley is a mortgage and finance consultant.  He has over 19 years professional business, finance, and management experience as an entrepreneur and corporate executive.  Craig is a 1993 graduate of the University of Arizona with a degree in Business Administration, emphasis finance.   You may contact Craig via email or directly at 480-385-1422 for any Arizona and California mortgage questions.

 

Condo Living

There are some definite benefits to condo living.  Common areas are kept up by the HOA, exterior repairs are taken care of by the association, and condo's are generally convenient to city centers.

However, there are few disadvantages.  For instance, if you live on the first floor and the new family who moves in upstairs like the Roos:

(Courtesy: www.GoComics.com)

Until next time,

Craig Turley
NMLS 08917
480-385-1422

If you are in the market for a condo or a new home, contact Craig to discuss the many options which may be available to you.  Condo mortgage financing may have stricter lending guidelines than other single family properties.