What is going on with Condominiums? Almost not a day goes by when I do not get a call from a client asking me why they cannot get approved for  condo home loan. There sure are some great deals out there in the condo market for our clients with these low prices not seen in San Diego for some time, but many can’t seem to qualify for a condo home loan in San Diego for many different reasons.

Either the owner occupancy rates are not high enough, the HOA are more than 15% delinquent, the complex is not FHA approved etc etc. So with all these rules and changing guidelines, what is the best way to get our clients approved for a home loan for a condo? Here are some great tips for you to know when your client is interested in buying a condo.

Is the condo complex FHA or Fannie Mae approved?

 First of all it is imperative to check and see if a complex is FHA approved or Fannie Mae approved if you plan on getting financing through one of these sources for your clients. Here are the links you need to check right away to make sure the particular complex is approved.

1. For FHA financing use the link https://entp.hud.gov/idapp/html/condlook.cfm

2. For Fannie Mae financing use the link below and then click on “California” to make sure the complex you are looking for is on the list for Fannie Mae approved complexes. https://www.efanniemae.com/sf/refmaterials/approvedprojects/index.jsp?from=hp
 

Spot Approvals are gone as of February 1st!>

 It’s official and as of February 2nd FHA are no longer allowing “Spot Loan Approvals” (SLAs). The decision to eliminate spot approvals in my opinion, will deny ownership to many potential condo purchasers, as this allowed people to purchase a condo in a project without having to go through the project approval process. Now the whole project will have to get approved. Previously, only the FHA could grant approval to condo projects for FHA financing, but now the FHA will allow Lenders to determine project eligibility and review project documentation.

It will be interesting to see what lenders will step up to participate in this new process, given the extra liability processing and certifying their own condo approvals will entail, it is my hope that the FHA will reverse this decision soon because this will definitely hurt condo sales in our markets.
 
What if complex has more than 15% HOA delinquencies! A Limited Condo Review is the solution!

Another rule that FHA and Fannie Mae have come up with, is that there cannot be more than 15% of the units in the complex be delinquent on their HOA fees. I have run into this problem myself a few times recently when the HOA cert comes back and it shows that 20-25% of the properties are delinquent..this will kill the deal immediately as the property will not get financing.

Now most people assume that the lender always requires a HOA cert on every condo loan file, this is not true. Here is the solution if you have more than 15% delinquencies in your particular complex! First of all, you should always do a little homework upfront on the specific complex, or if you can request a HOA cert upfront on the complex and determine the data of the complex. If your borrower has the following requirements..is owner occupied or 2nd home, has a loan amount <$417k, complex is more than 50% owner occupied, complex is not involved in litigation etc, some lenders will allow you to complete a “limited condo review” on the complex, which eliminates the need to request a HOA cert which lists the delinquencies.

You are eligible for a limited review when you run DU (Fannie Mae desktop underwriter) on your client’s application,  DU will advise you if you are eligible to qualify for a limited review for the complex. If you qualify for a “limited review” you will not have to send in a HOA cert which of course would list the HOA delinquencies of the complex…so bingo.. your borrower now qualifies for financing. I should also point out it is important that the appraiser inputs the correct data regarding the condo on the appraisal, as not listing this correct data may trigger a HOA cert and then kill the deal.

Please note there are only a few lenders that I know off that allow a limited review on a complex, so if you have a file that has HOA delinquencies over 15% let me know and I can help you get your client approved. 

 What if I cannot get a Limited Condo Review?

If you cannot get a limited review (as described above) then you are going to be subject to a “Full Review” of the complex and a full HOA cert is required for the loan file. Make sure you are aware of the requirements to be eligible for FHA and Fannie Mae financing. Here are some of them but make sure you know what all of them are for a specific lender you are trying to get financing with. For example, you will need 51% owner occupied, no litigation, 70% of the units must be presold or under contract, no more than 15% of the units can be delinquent on their HOA fees, one investor cannot own more than 10% of the total number of units, etc.

 
Mortgage insurance and Condos!

Obtaining mortgage insurance on condos for high loan to value financing has also become quite difficult. Thankfully the FHA will allow mortgage insurance (MI) up to 96.5% on condos. Fannie Mae now only allows conforming financing up to 80% on condos and this is because none of the MI companies will insure higher than 80% here in CA, as CA is still determined as a declining market.

While values continue to decline, (although it seems at last they are stabilizing in CA) MI companies will limit their exposure on condos. When the market picks back up again and values have stabilized, you will see MI companies come back to the fore again to offer MI on higher LTV financing on condos.

 Help your clients qualify for single family homes instead of condos!

There is no doubt it is getting tougher to get financing on condos, even some of the sellers will not even allow FHA financing on some of their condos. But I do think there will be many more opportunities opening up soon for our buyers, as the lenders have to allow their condo inventories to unclog at some time. So when they do it is imperative that we know what our clients can qualify for and what requirements need to be met for financing.

From working with lots of first time buyers, many of them assume they can only afford a condominium as this is where their price range is and affordable monthly payment is. But there are ways to help them qualify from “condo buyer to single family home buyer”.

Here are a few tips that I have used recently to help some of my clients move into a position to qualify for a single family home, just by helping them restructure their debt a little and also by giving them the right advice. Lets say your buyer is looking for a condo, by eliminating for example $300-$400 HOA fees from a buyers debt ratios, this enables them to afford $55k-$75k more on a single family home. Perhaps they also have a $500-600 car payment they can turn in for a cheaper payment to help them afford more financing.

Perhaps they can get a loan from the family to payoff some high interest payment credit card debt and lower their debt ratios, and in turn they can pay them back with the $8k tax credit (it is my opinion that this tax credit will get extended for 6 more months). Perhaps they can ask one of their family members to help them co sign for a single family home because they cannot get condo financing, many times they did not know co signing was an option, and only asked their parents after I advised them too.

I hope this information and some of these ideas help you and your clients, if ever you have any questions please do not hesitate to contact me.

Sincerely

Michael