Fannie Mae Updates Condo Financing Requirements

In its attempt to stabilize the housing market by increasing investor confidence, Fannie Mae has tightened up a bit on its requirements for loans that it will buy.  Since most lenders sell the loans they generate, and since Fannie Mae buys the majority of housing loans, they set the “gold standard”.  If a loan can be found with less stringent requirements, it will typically cost more in terms of loan fees and interest rate.  So, changes made by Fannie Mae are extremely important to the markets and have a huge impact on an individual’s ability to get a loan on a specific home.

Condos have been hit very hard in the current downturn, so it makes sense for Fannie Mae to review its requirements in an attempt to make new condo loans safer investments.  Why does a buyer need to know anything about the requirements?  It’s simple.  It is very disappointing to find a home you love and then find out that you can’t get a loan on it.   Standards are different for “established” and “new” projects, but the guidelines that follow are the basics, and apply to both condo classes unless noted otherwise.

• New projects require 70% to be presold – established projects require 70% owner occupancy.
• All projects require fidelity insurance – this covers the value of the association’s reserve and active funds.
• No more than 10% of the project can be owned by a single entity.
• No more than 20% of the project can consist of non-residential space.
• Dues delinquency rates can be no more than 15%.
• Borrowers must have individual insurance on their specific portion of the project.
• The condo association must have at least 10% of its budgeted income designated for replacement reserves and adequate funds budgeted for the insurance deductible.
• Payment abatements (HOA dues paid by seller or other concessions) are not allowed
• The minimum down payment required for a primary residence in an established condo project is 10%.  Credit score, purchase as an investment or second home or other factors could increase this requirement.
• Some of these can be modified on a case by case basis

Ultimately, these requirements are to the benefit of a buyer.  They lower the odds of problems in a complex, whether of the association or multiple foreclosures, that could negatively impact the value of an owner’s investment.  Many of them are disclosed in the resale certificate or public offering statement which a seller is required to provide to a buyer.  As a preview of what may be in store, your lender can go to the Fannie Mae website to see if a particular complex is approved.  From there it is just up to you.

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