Fannie Mae has raised the bar on the qualifications for the loans that they will buy. This move could help boost investor’s confidence and bring some much needed stability to the market. Fannie Mae owns a large percentage of the housing loans that are issued buy lenders; therefore with them having a lion’s share of the home mortgage market, this could have a big impact on that market. This will also affect borrowers as well being that Fannie Mae has raised the standard in their lending practices. One of the areas that have been affected by these new standards is the condo market.
The condo market has not been doing too well in the current economic environment. So during this downward trend in the condo market, Fannie Mae has tightened the requirements on loans for condos. By doing this, it could possibly help condo loans become safer investments. There are different guidelines for the “established” projects and the “new” projects; but I have listed below the basic guidelines that apply to both condo classes unless it is stated otherwise.
The basic guidelines are as follows:
The new projects have are required to be 70% resold; established projects require 70% owner occupancy.
There is a 15% cap on dues delinquency rates.
Only 20% of the project can be non-residential space.
A single entity can own no more than 10% of the project.
All of the projects must carry fidelity insurance which covers the value of the association’s reserve and active funds.
Borrowers have to have individual insurance coverage on their portion of the project.
Condo association has to have at the least, 10% of its budgeted income allocated for replacement reserves and also enough funds set aside for its insurance deductible.
HOA dues paid by seller or other concessions are not allowed.
A minimum of 10% down payment is required for a primary residence in an established condo project. A persons credit score, buying as an investment, a second home, or other factors could make this minimum requirement go up.
Now some of these requirements can be adjusted on a case by case basis. These requirements can offer some protection to the buyer, in the event that problems should arise in the complex, problems with the association, or multiple foreclosures; events that could negatively affect an owner’s investment. You will find a lot of these guidelines in a resale certificate or a public offering statement that a seller is required to provide to a buyer or you can find them on the Fannie Mae website.
