Condominium Mortgage More Difficult to Get?

• By Admin
• October 30, 2013
• Comments Off on Condominium Mortgage More Difficult to Get?

Condominium buyers seem go through a more stressful mortgage process than single family homebuyers. This is due to the fact that, in addition to the loan borrower being scrutinized, the condominium project has to be evaluated.

When a bank lends to a homebuyer, it seldom keeps the mortgage for the entire duration of the loan. More often than not, the bank packages similar mortgages and then sell them to investors on the secondary market rather than wait to be paid back bit by bit for the next 30 years. It makes business sense for the bank to recapture the capital and make another loan as soon as possible.

On the secondary market Fannie Mae and Freddie Mac are the largest investors buying up mortgages. In order to be sold to Fannie or Freddie, a loan has to conform to certain strict standards. For mortgage securitized by a condo unit, the condominium project itself has to comply with Fannie/Freddie guidelines.

Among others, the following are the ground rules for an acceptable condominium project:

The condominium project cannot be operated as a hotel, resort or other type of hospitality establishment.
It cannot be a timeshare.
The condo cannot contain units with multiple dwelling dwellings.
The project cannot be involved in litigations or arbitrations.

Depending on whether the condominium project is complete, or still subject to additional phasing, and whether control of the “home owner association” has been turned over to the unit owners, Fannie Mae and Freddie Mac also stipulates that;

owner occupied units be at least 51% of the total units, and;
no single owner owns more than 10% of the units.

Condominiums that do not comply with Fannie/Freddie rules are said to be “non warrantable” condos.  Because they are ineligible to be sold to Fannie and Freddie, non-warrantable mortgages are often more difficult to get, and usually carry a higher interest rate.