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Condominium Mortgages – A Trickier Road Today

Right along with the single family detached home building and price appreciation boom, we also experienced huge growth in condo development.  From seashore and mountain vacation condos to urban walk-to-work high rises, there had been a sustained boom in construction and prices ... at least until 2006.  The savings in construction to do these multi-unit projects brings with it a problem though.  If things are turning south on you in the market, it's very difficult to just stop.  Deposits have been taken, residents are in place in earlier phases, and infrastructure needs to be finished out.

When things were getting steadily worse over the last couple of years, many condo projects went forward to completion, but sales were at much lower prices than originally anticipated, or there just weren't many sales.  So, several situations could develop, sometimes co-existing:

  • Too many empty units created cash flow shortages for the fees to operate and maintain the projects
  • These cash flow shortages usually resulted in increased fees, sometimes dramatically higher
  • Some project developers dumped units in groups to investors at very low prices
  • Some projects just stopped before future planned phases broke ground, changing the fee requirements, causing increases

As a mortgage professional, my job is to help you to realize your goal of home ownership, including a condo purchase if that's in your plan.  But, do your research with a Realtor or attorney, as well as a mortgage pro.  You'll want to carefully examine not only how the project is structured today, but whether that was the original plan.  Thoroughly investigate the finances to determine if the cash flow into the future will sustain services without big increases in fees.

Lenders are scrutinizing condominium loans, with much tighter requirements and restrictions as well as an increased rate.  One newer restriction has to do with a tightening of percentage of ownership in a complex.  With more of the units moving in groups to investors, or neighbors buying up condos next door, the overall percentage of ownership by any one individual or company can become too high.  If too many are in foreclosure, you'll not get a loan.  And, it's likely that down payment requirements are higher than required for a detached single family residence.  Do your homework, and let us help.

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