Tacoma Condo Financing ChangesPosted by Brett Tousley on Thursday, October 1st, 2009 at 1:13am.
Condominiums have always required more in the way of paperwork than a traditional single family residence, and much of the reasoning for the increased documentation is not well explained, or understood by many loan officers. On top of this, there have been a myriad of changes to overall lending guidelines in the past six months. Perhaps as a result, the recent updates regarding changes in the approval process for condominium projects seemed to fly under the radar for most.
The biggest change is that FHA is no longer going to allow Lenders to give a “spot” approval for an individual condominium residence, but rather will have to certify the entire condominium project. HUD will continue to keep their database of approved projects, but as of October 1, 2009 Lenders will no longer be allowed the shortcut of a spot approval for any single unit in a project. The good news is that FHA has maintained project guideline requirements consistently with what was previously required for a single unit’s spot approval. This means that Direct Endorsement Lenders should not have any problem approving a project where an individual unit would have previously met the spot approval standards.
The same cannot be said in the case of most Conventional financing. The majority of Conventional investors have made a change to the percentage of units in the project that must be “owner Occupied.” The definition of owner occupied is a unit that is either the owner’s primary residence, or their second home; in other words, not a rental, or investment property. Previously, the Conventional standard was the same as the FHA standard of 51% or more of the units “owner occupied.” However, that requirement is now 70% in most cases. This will not be a problem in many projects because the CC&R’s restricted the percentage of rental units to 30% or less in order to protect values.
Projects that have not maintained sufficient guidelines for the percentage of investment properties, or have experienced a significant amount of unit foreclosures will have problems. If a condominium has been operating with a greater than 30% rental unit concentration, they now cannot be approved for conventional financing. The same goes for a project that was previously limited to 30% investment properties, but has encountered a number of foreclosures. Those foreclosure units are now likely owned by the original investor, or bank, and are certainly not owner occupied. As a result, these properties will only be eligible for FHA, or VA financing so any prospective buyer will be forced to pay either Private Mortgage Insurance, or a VA funding fee, making the property less attractive to buyers with 20% down payment.
The result for projects that do not have the minimum 70% owner occupied standard is a catch 22. For them to increase the percentage of owner occupied units, they will have to sell some of their properties that are currently non-owner occupied. However, financing for those properties will only be available on a somewhat limited basis of government backed loans.
Article provided by Ron Brown @ First Mortgage Co of Washington 253-881-4699
Brett Tousley is the designated broker and owner of NW Home Brokers. He can be reached at 253-820-2745 or email@example.com
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