By John R. Rapasky
Did you know when you apply for a loan, there are actually 2 approvals that take place? The lender reviews the file based on your credit and income, and also reviews the collateral. The collateral must be sufficient in order for a loan to be approved. When the collateral is a condominium, there is increased scrutiny by the lender. This is due to the fact that a condo typically has shared walls, ceilings, or floors, and there is more risk to the lender because the loan is somewhat dependent on the status of the units surrounding the condo. Thus, lenders will ask questions of the Homeowners Association (“HOA”) regarding the condominium complex to evaluate whether they want to accept the risk and make a loan on the property. This blog article focuses on factors a lender considers when lending on a condominium.
The type of loan you apply for can make a difference to the lender as to whether they will approve the condo. First, if you are applying for a FHA loan, the condominium complex must be approved by FHA. You can check to see if the complex has been approved by FHA by going to the FHA approval list at: https://entp.hud.gov/idapp/html/condlook.cfm
Similarly, if you are applying for a VA loan, the condominium must be approved by VA. You can check to see if the condo has been approved by VA by going to https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch
Fannie Mae also has a list of approved condos. However, contrary to FHA loans, if the condominium complex does not appear on its approved list, it may still qualify for financing. The Fannie Mae approved condo list can be found at: https://www.efanniemae.com/sf/refmaterials/approvedprojects/index.jsp?from=hp
To get on an approved list, the condominium association should contact FHA or Fannie Mae to obtain an application.
In addition to being on an approved list, the lender typically has a questionnaire that must be completed by the condominium association before they will lend on the property. The following are some of the criteria lenders review before determining whether to lend on a condo:
– Whether at least 51% of the units in the condo project are owner-occupied
– Whether any single investor owns more than 10% of the units
– Whether the common areas are 100% complete
– Does the project contain any commercial space
– Does the project operate like a hotel, i.e. is there a rental desk in the lobby, cleaning service, and other hotel-like amenities
– No more than 15% of the units are more than 30 days delinquent in the payment of HOA dues
– Is the HOA involved in any litigation
– The amount of reserve funds for future repairs and/or replacement
– If a conversion or converted in the last 3 years, is the renovation 100% complete and completed in a workmanlike manner
Thus, when you are considering purchasing a condominium, contact the HOA and find out what the answers are to the above questions. A little bit of homework before you accept a contract will save many headaches and heartbreak later in the process. If you have any questions, contact us and we will be happy to help you.
John Rapasky is the President of the Counsel Mortgage Group, LLC. You can learn about them at www.counselmortgage.com. Copyright © 2010 Counsel Mortgage Group®, LLC
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