BUYING A CONDO? It's Going to Get Tougher!
LENDERS, PRIVATE MORTGAGE INSURERS TIGHTEN GUIDELINES!
Here in Chicago, and in most other parts of the country, it used to be nearly as easy to buy a condominium as to purchase a new single-family home. However, increased lender risk, brought on increased loan defaults, have lenders and mortgage insurers imposing far more stringent loan approval requirements.
Beginning May 1st, AIG United Guarantee, one of the largest issuers of Private Mortgage Insurance in the U.S., will no longer offer coverage in hundreds of Zip Codes which it considers "declining" in average value. All applicants putting less than 20% down will be impacted here - regardless of their credit scores or financial credentials (those with down payments of 20% or greater are not affected, as mortgage insurance is not required for these higher-down-payment borrowers),
Even in stable zip codes, mortgage insurer United Guaranty, and several other mortgage insurance underwriters, will require all condo buyers to put a minimum of 10% down. They will reject applications for condos in buildings with 30% or more non-occupant investors.
Under new guidelines just instituted by national mortgage underwriter Fannie Mae, lenders must now perform added research on a condominium association's legal documents, and assure, up front, that condo budgets contain at least a 10% contingency for emergency and reserve expenses. There are also new, more stringent requirements regarding past-due or uncollected homeowner's assessments, and percentage of space allocated to commercial use.
Further, lenders must now shoulder responsibility if they write loans on projects that don't fully conform to the new Fannie Mae guidelines. Some lenders are being over-restrictive on their condo approvals, just to assure complete compliance, and are unnecessarily rejecting some borderline condo buildings.
Here in Chicago, these changes further confound a stagnant condo market in many Chicago Neighborhoods and nearby suburbs. One of our own Dean's Team clients just had his loan rejected because the condo building in which he is purchasing is recently converted and only 1/3 sold out, and is located in a "declining market" zip code, as defined by his lender. He didn't have the extra funds necessary to bring his down payment up to at least 10%.
Jeff Lipes, a Loan Originator with Family Choice Mortgage of Connecticut, is hesitant to commit approval to prospective condo borrowers, due to the research required to make sure the building they are considering passes Fannie Mae and PMI muster.
"Even if you had an 800 FICO score and 50 percent equity," said Lipes, "you still might not be able to get a condo loan." It depends on whether the underlying project can pass the underwriting tests, whether it is in a declining market.
In some cases, lenders place a "concentration" limit on certain buildings. Several lenders refuse to finance more than a pre-determined percentage of units in a single condo development, to limit their exposure to possible loan defaults.
See Kenneth R. Harney's article in last Sunday's Chicago Tribune for more information.
DEAN MOSS & DEAN'S TEAM CHICAGO
