I’m sure you have heard in the industry that many changes have occurred, or will occur, for condo financing. But Condos can still be a great purchase & close successfully if done properly!
FHA CONDO’S – changes
In order to purchase a condo with FHA financing, the complex must be previously approved with FHA and listed on the FHA Condo approval website. Generally this is done by the original builder at the time of construction. In the past, FHA would allow a “spot approval”, which is the approval of a single unit in a complex that meets FHA requirements but was never formally submitted for approval. FHA will no longer accept spot approvals. But FHA has also announced that it will be changing the condo approval process to potentially make it easier for full projects to be approved.
VA CONDO’s – changes
To purchase a condo using VA financing, the complex must be previously approved with VA and listed on the VA Condo approval website. In prior years, VA would finance a condo that was approved by FHA, however this has recently changed and VA now only allows condos approved by VA and listed on the VA website.
CONDO INSURANCE – changes
Condo HOA’s carry “blanket” insurance that covers the building structures. In the past, condo owners were not required to take on a separate insurance policy. However, lenders have discovered that the “blanket” policies of some HOA’s are inadequate. Therefore, a separate insurance policy “could” be required of a buyer if the blanket policy coverage is not satisfactory to the lender.
CONDO HOA’s / CONDO “CERTS”
The buzzkill condo word now seems to be “condo cert”. The “condo certification” is a form required by lenders to be filled out by the Homeowners Association in which the lender asks many questions about the status of the condo complex. The key factors the lender is looking for is the % of units owner occupied versus rented and the overall health of the association. If a complex has an unusually high concentration of rental units, a high number of foreclosures or a high dollar of delinquent dues, this is cause for concern. All types of financing require condo certs to be approved by the lender. This is another layer in addition to the project approval and the buyer approval.
CONDO UNDERWRITING – changes
Many conventional investors are now requiring to personally review & underwrite a condo application rather than allowing the mortgage banker to underwrite and approve in house. FHA and VA still allow the in-house underwriter to review and approve. It is important to work with a lender who understands the investor overlays to ensure a smooth transaction. An experienced and educated loan officer will know how to place a buyer with the most appropriate investor.
I cannot stress enough the importance of being pro-active when it comes to condos. Before looking to buy a condo, consult with your lender to ensure the complexes you are interested in are lendable. Before writing a contract, you may even ask your lender to do a full condo cert to verify the HOA will be approved.
-Brought to you by
Dallas Turley-Sr. Mortgage Consultant
Turley Mortgage Group
On Q Financial-Mortgages Simplified