Monday, August 31, 2009

Can you finance a condo in the current market? By Frank

Condo Financing
In this article I will be explaining the difference in financing a condo versus a single family residence. The first and most obvious difference is that each unit shares a building with the other units. In order to maintain the structure that houses all these units there must be an association as established by Florida Law. The rules and guidelines set by the association is for the benefit of all unit owners. This includes the payment of a monthly condo fee to maintain and pay common area repairs and upkeep such as landscaping.

In a condo you have limited rights as opposed to fee simple ownership (Single Family Residence) which gives you 100% ownership of the land and all the improvements. Each form of ownership poses different issues for lenders and mortgage insurance companies. Fee simple is the least riskiest for lenders. In a condo the additional condo fee expense is calculated into the borrowers mortgage expenses to qualify for their loan. This fee must be paid every month by the unit owner or the association has the right to foreclose on the property posing another risk to the lender.

Should a percentage of owners stop paying the condo fees, the remaining owners would be responsible and may see an increase in the fee to make up the difference. Another item that adds to the risk of lenders are unforeseen repairs such as replacing a roof. The replacement of a roof on a condo structure may run in the hundreds of thousands of dollars and should the association not have enough capital reserves the unit owners would be assesed a special assesment that is an unexpected expense for unit owners.

Due to these issues and many others lenders are very careful as to which condos qualify for financing. Fannie Mae the largest investor in the mortgage industry publicizes a list of which condos it will not lend on. This list is constantly being updated. Before a lender approves a loan on a condo they request a condo questionaire to the association or management copmpany that runs that association.

This form answers questions the lender needs to know in order to approve the condo for financing such as reserve requirements, percentage of investor properties and if involved in any litigation. Due to the flood of recent foreclosures many condos are no longer qualified for conventional financing and due to that the buyer may need to come up with a substancial down payment and incure higher cost and rates.

Should you want to check if a specefic condo is approved for conventional financing you can do so by visiting Click here . Should you have any further questions please feel free to contact me.

No comments: