Condo Financing in Today's Market is difficult but not impossible...
There are a four parts to every loan approval. Income, Assets, Credit and Property. Condo financing is more difficult now than in the past. Why is this? In the past, as little as 5% down payment was required plus lenders were accepting Stated Income and Stated Asset applications. Then the bottom fell out of the housing market. Investment and second home condos had a higher foreclosure rate than primary homes. The banks are now stricter on credit and down payment investment because of the huge losses they faced in the past. Data shows that the majority of foreclosed properties were classified as a "condotel".
What is a condotel? Well, it depends on the person you ask. Fannie and Freddie, the corporation that buys the majority of mortgages from banks and mortgage lenders, have not given us a clear cut explanation as to what they consider is a condotel. So the banks and lenders have all made up their own rules. Some say -- if it has a front desk or registration desk, maid service, short term rentals and small square footage it is a condotel. Some say if it has the word "hotel, motel, or resort" in the name it is a condotel. Some banks just say no to financing condos all together.
So you may be asking yourself, what do I need to do if I want to get a loan on a condo as my primary/second/vacation home? The answer is.....you need to be ready to put at minimum a down payment of 25%. If you put down 25% or more, and are a strong borrower Fannie Mae and Freddie Mac will allow you to do the loan with limited review on the condo. That will allow us to approve the condo by only providing an appraisal, insurance and a condo questionnaire that asks a few questions pertaining to the condo association. The condo will be approved by the underwriter and should not need to be reviewed by the banks "condo department".
If you only put 20% down, we must provide an appraisal, insurance, questionnaire, budget, minutes of the last meeting and recorded condo docs. The property information will be sent to the banks condo approval department, which can add several additional days on to the loan process. It also opens the door to more scrutiny on the property.
Fannie and Freddie will allow the seller to pay up to 6% towards the buyers closing costs and pre-paid items which may cover all costs to close.
Be aware that if you are interested in buying a condo with a "front desk" you will have fewer lenders to choose from and really need a loan officer that is familiar with condos and reading between the lines of what the guidelines say and what they really mean.
If you already own a condo or need the income the condo will generate to help you qualify for the loan, you are looking at doing an investment property condo loan. Fannie and Freddie right now will not allow you to do investment condo loans on MOST condo projects. You will need to do the loan as a second home, or pay cash.
So the bottom line is that you need to be ready to put 25% down, and you can get a great deal on a condo on the beach!!
Written by Helga James at Barr Group Mortgage
Please contact Vicky Pitts at The Barr Group
For information specific to your needs.
251 980 2075 office
251 233 3358 cell
251 980 2074 fax