FINANCING A UNIT IN A CONDOMINIUM - FLORIDA
By: Lourdes Cuervo, Cornerstone First Mortgage.
Lenders sell most of their 30 and 15 year fixed rate loans to Fannie Mae or Freddie Mac. Upon selling the loans lenders receive cash which they use to engage in further lending.
WHAT ARE THE MINIMUM DOWN PAYMENT REQUIREMENTS TO BUY A CONDO UNIT IN FLORIDA?
It depends on whether the condo project can be approved under a "full review" or a "limited review" by Fannie Mae or Freddie Mac.
To qualify under "full review" at least 10% of the association's budget must be allocated towards reserves. A "full review" condominium questionnaire must be filled out by the HOA to ensure the project meets other required criteria.
MINIMUM DOWN PAYMENT UNDER FULL REVIEW:
Primary residence: 3% (first time homebuyers) and 5% for others.
Second Home: 10%
Investor: 15%
MINIMUM DOWN PAYMENT UNDER LIMITED REVIEW:
Primary residence: 25%
Second Home: 30%
Investor: 30%
Limited Review criteria is less stringent. Budget does not need to be presented or analyzed. A streamlined condominium questionnaire is sent to the HOA.
WHAT IF I WANT TO BUY A UNIT IN A CONDO THAT DOESN'T HAVE THE REQUIRED RESERVES. IS THERE AN ALTERNATIVE SOLUTION?
Yes. If you're buying a primary residence, we can assist you in applying for a second mortgage. You would have to come up with 10% down payment and the remaining 15% would come for that second mortgage. Call me to find out how.
If you're buying a condo as a second / vacation home, you would need to invest at least 25% down - the remaining 5% could come from a second mortgage. This alternative is not available for investors.
WHAT IS FANNIE MAE? WHAT IS FREDDIE MAC?
Fannie and Freddie are government sponsored enterprises created by Congress and regulated by them. Fannie and Freddie perform an important role in the nation’s housing finance system – they provide liquidity, affordability and stability to the U.S. mortgage market.
WHY DO FANNIE MAE AND FREDDIE MAC TREAT CONDOS DIFFERENTLY THAN A SINGLE FAMILY HOME?
To Fannie Mae and Freddie Mac, units located in a condominium project present risks to them that are distinct from the risks associated with a single family home. Risks they list include but are not limited to:
- Insurance coverage that is inadequate to protect the project from unexpected losses
- Insufficient reserves for replacements for items such as elevators, painting and stucco repair of the exterior, upgrading pool areas etc.
- A high percentage of unit owners delinquent in their assessments (resulting in deficient operating budgets and sub-par maintenance)
- Associations where there is fraud committed by officers
- Litigation by or against the association
HOW DO I KNOW IF THE CONDO I AM PURCHASING MEETS FANNIE MAE / FREDDIE MAC'S CRITERIA?
In order to assess the risK and evaluate if the condominium project is demonstrably well managed, a “Condominium Project Questionnaire” must be sent to and be filled out by the condominium association’s property manager or a member of its Board of Directors.
In addition to the questionnaire, the lender will require a copy of budget of the Association and a certificate of insurance.
Based on the information received, the project will either meet or not meet Fannie or Freddie's standards. Mortgage loans in condominium projects which do not meet their standards will not be purchased by them.
WHO PAYS FOR THE "CONDOMINIUM QUESTIONNAIRE"?
THE BORROWER IS RESPONSIBLE FOR THE FEE CHARGED BY THE HOMEOWNER’S ASSOCIATION TO FILL OUT THE QUESTIONNAIRE. THE FEE MUST BE PAID UP FRONT AND IS NOT REFUNDABLE.
WHAT IS A NON-WARRANTABLE CONDOMINIUM
Condominium projects which do not meet Fannie or Freddies Guidelines.
We work with lenders who will do mortgages in “non warrantable” type projects. These lenders will charge higher rates of interest than Fannie Mae and Freddie Mac to compensate for the added layer of risk that they’re absorbing.
TIPS FOR BORROWERS LOOKING TO PURCHASE A UNIT IN A CONDO - DO THIS BEFORE YOU MAKE AN OFFER
There are things you can do at no cost to you which will help to determine if the condominium project meets guidelines:
- Check Fannie Mae’s website to see a list of approved condominiums: https://www.fanniemae.com/content/datagrid/condo_pud/condo_approved_projects_report-fl.pdf
- If the condominium you are interested in is not on the list, before you make an offer ask your realtor to obtain and provide you with the following from the listing agent:
a) A copy of the association’s approved budget (to see if Association has sufficient reserves)
b) Copies of all certificates of insurance for the association (to see if the Association has sufficient coverage)
c) If there is any litigation pending – request that your realtor obtain from the listing agent copies of any pending litigation the Association is involved in.
[1] For a complete list of what makes a project ineligible go to: https://www.fanniemae.com/content/fact_sheet/ineligible-condo-project-characterisitics.pdf and https://www.fanniemae.com/content/fact_sheet/condo-project-review.pdf