It’s harder than ever to get a mortgage to buy a condo.
Last week, a client had trouble obtaining a mortgage because the condo association reserves were less than 10% of the operating budget. The condo association had just paid for a large repair to the roof and it tapped the reserves. The association was not aware that by doing so they came close to killing the contract for the buyer (the hard-working mortgage broker was able to get an exception to this and it closed).
Earlier this year, Fannie Mae made added the following requirements to condo mortgages:
- No more than 15% of the condo owners can be delinquent in paying dues.
- No more than 10% of units can be owned by a single entity.
- If you put down less than 25%, the interest rate on the loan will be increased by 3/4%.
- Buyers have to get a “contents” insurance policy (used to be optional).
- 10% of the budget must be in the reserve fund.
On top of that, condo appraisals are regularly coming in short of the purchase price. Appraisers are using comparable sales from the last three months, rather than from the last year. Any comparable sale more than three months old is discounted heavily and that drags down the appraised value.
Buyers should be aware of the Fannie Mae rules and should ask for the condo budget before they make an offer.