Month: May 2009

A friend of mine sent me the infromation below regarding  condo financing.  I thought it would be relevant to a lot of people. Here are some key things you NEED to know about condo financing.
 
LTV ‘s – Unfortunately, there is currently no PMI available on second home condos and my lender friend was not able to identify  any bank or lender doing 2nd mortgages on them except in rare circumstances where the borrower has a strong relationship with a bank. Lenders are limited to 80% max on 2nd home condo financing right now.  75% financing gets buyers a slightly better interest rate.  PMI is available on primary home condo purchases to 95% if the borrower meets FICO score requirements.

Condo questionnaires – Full condo review forms are required on primary home condos over 80% LTV, second home condos over 75% LTV and ALL investment condos.  Lesser LTV’s are allowed to have a Limited Review where the lender calls and asks several key questions but the management company does not have to complete a full questionnaire.

Current pitfalls of the condo questionnaire ~

• Occupancy – If the condo is being purchased as an investment property, the occupancy  status has to be at least 51% owner occupied /second home.  If it is a primary purchase or a second home purchase, occupancy percentages are irrelevant.  Foreclosure/bank owned properties should NOT be counted as investment properties on the condo docs so it would be prudent to double check with the management company if this ends up being an issue to make sure they are not including foreclosures and bank owned properties.

• Insurance – All condos with more than 20 units are required to show proof of Fidelity Bond coverage (this coverage insures against employee/board member dishonesty or theft).  Most condo associations have this but some have had to add it which has caused closing delays.

• HO6 Insurance – The blanket policies for condos on hazard and flood generally just cover the structure and nothing on the interior of the condo.  Borrowers are required to get interior “walls-in” policies know as HO6 policies equal to 20% or the appraised value of the condo.  If condo value is $500,000, they need $100,000 worth of coverage for the inside and so on.   Buyers – know this upfront so you are not surprised.

• Delinquent HOA  Fees – Important information here, especially considering the market today ~ If more than 15% of the units in a condo are over 30 days delinquent on HOA fees, the property is considered non-warrantable by Fannie Mae guidelines.  In a project with 50 units, having as little as 8 of them be more than 30 days delinquent can throw the loan out of Fannie Mae eligibility for financing.  This has been huge over the last couple of months because the bank/asset managers are often not paying the regime fees on the properties they foreclose on and they only get paid once the property sells to a new owner.  HINT – A Limited Review does not ask this question buyers can potentially avoid this obstacle by putting down a little more money on the property if it is a primary or a second home purchase and avoiding the full condo questionnaire.

Apparently condo financing issues are impacting purchases and those looking to refinance all over the state.  What has been your experience? Tell us your story or add new information.