Fannie Mae, Freddie Mac and the FHA, Federal Housing Administration, all began in 2008 to become more restrictive in their policies to guarantee or purchase mortgages made on condominiums. While there hasn't been much change in those restrictions and rules in the last two years, there has been a lot of market change.
Condominium projects have been and still are experiencing the same foreclosure woes as the single family home markets. As more condo owners are reaching an "upside-down" situation of owing more on their mortgage than the unit is worth, it is creating problems for those wanting to buy in a project and needing a mortgage. Some are simply walking away, others are selling as short sales, and many are renting out their units. Rules in place by these mortgage giants and these market trends are causing more condominium projects to be rejected for mortgage backing. Some of these rules include:
- Fannie Mae will typically preclude a mortgage if more than 15% of the owners are behind 30 days or more on their monthly maintenance fees (new loans only, refinances are OK)
- Condo associations are required to set aside 10% of their budgets for maintenance and "reserves."
- New projects must have 70% sold or under contract for Fannie Mae backing. FHA rule is 30%.
- FHA requires a minimum of 50% of units be occupied by the owner, and that no more than 10% be owned by any single investor.
- Conventional requires a minimum of 70% of the units to be occupied by the owner and no more than 10% be owned by any single investor.
If you're considering purchasing a condo, work with a mortgage broker to get the information you need on the financial stability of the project and eligibility for mortgage backing.
If you have an experienced loan officer they will also know ways around this above condo rules
Ask your mortgage professional if they know the answer to that question
If not, then contact me. Casey Moseman