Tuesday, December 14, 2010

Condo Financing: Tips Before You Buy

Florida one of the condo capitals of the U.S. has been the hardest hit with foreclosures and distressed properties.  As a result when owners do not pay their mortgage, they do not pay their condo fees, and the condo association struggles financially.  Lenders do not want to see less than solid finanical statements, too many renters, or too many people paying condo fees late.  If certain thresholds are not meet FHA or Fannie Mae guidelines, the condo community will be denied and you will not obtain financing even if you are borrow with excellent credit and sufficient down payment.  This is widespread and common, and many condo communities can only be bought with cash.

Condos are an affordable option for all type of buyers, but how does a buyer find out if a condo community is "financiable" before they start their home search?  Well ultimately,  you will not be able know until you are under contract, and your lender requests a "condo questionnaire".  This will tell your lender what the current status of the condo.   Sometimes, by the time your lender receives this form, you have spent money on the transaction such as appraisal and inspection fees.

Here are some tips to minimize, but not eliminate, the risk of buying in non-financiable condo community.
  • Is the community on the Approved List:  FHA and Fannie Mae have a website you can look up the condos by name.  If the condo does not exist on the list, does not mean it would not be approved.
  • Look at Sold Properties:  Have your buyers agent look at recent sold properties in a specific community to see if one closed with financing or cash.  If there was financing involved, find out what mortgage broker the buyers used.
  • Call the Condo Association:  Sometimes the condo association will know if they have had financed sales.
  • Buy Home Path Properties:  Fannie Mae offers Home Path financing, and they do not scrutinize the condo community, with requiring a condo questionnaire.  Search condos Fannie Mae
  • Buy New Construction:  Many new construction condos project make all necessary applications to lenders Fannie Mae and FHA to ensure their condo project can be sold with financing when certain number has been sold.  These condo association are controlled by developer for a period of time and not overload with distressed resales.
  • Buy a Town Home Instead:  Town homes offer the same features of a condo community are not subject to approval of the community, so you avoid this financing issue altogether. 
  • Investigate Yourself:  If you have been watching a particular community and finding pricing too good to be true, such as 1 bedrooms for $25,000, and 2 bedrooms for $50,000 and there is a bunch of short sales and foreclosure for sale, it highly unlikely financing will be an option.