Fannie Mae, who backs most home mortgages in the US, has changed the requirements for issuing loans to condominium buyers rather more than a few times since the mortgage crisis began. As of November 16, 2013 additional changes have been made due to the update in the approval of loans system; DU (Desktop Underwriting). They have become more and more stringent. Below is the summary of the latest set of rules, as we understand them. Any buyer considering a condo should get familiar with them, and ask the sellers the right questions, before starting the buying process.
FANNIE MAE CONDO REQUIREMENTS
Existing Condominiums (5 or more units in project)
- Square Footage: Appraiser must provide at least 2 comparable sales on similar properties to demonstrate market acceptance.
Minimum Square Footage and Unusual Floor Plans
There is no minimum square footage requirement for conforming and non-conforming loans. However, the appraiser must provide comparable sales to demonstrate market acceptance. This also applies to properties with unusual layout and floor plans.
Condo Project Review
- Reserves: Condo Association must have 10% of total annual income in reserves.
- Occupancy and Down Payments Required: Primary residence and second home available only.
- Owner Occupied & Second Home units: If building has less than 51% owner occupancy, not an issue.
- Max LTV 90% on primary residence
- Max LTV 75% on Second Homes: (25% down payment required) – No Investment available in conventional loans
- Investor Concentration: Projects where a single entity owns more than 10% of the total units in the project are ineligible.
- Units that are for sale (not rented) may be considered owner occupied for purposes of calculating occupancy ratio.
- Delinquent HOA Dues:
- No more than 15% of the fee payments can be more than one month delinquent.
- No more than 15% of the total units can be 30 days or more past due
- Required Condo Docs for Condo Approval:– (Must include ALL condo docs)
- Declaration of By-laws,
- Rules and regulations,
- Condo Trust,
- Master Deed,
- Current Year Condo Budget,
- Current Year Balance Sheet,
- Completed Condo Questionnaire
- Master Insurance Policy
- Fidelity Insurance required on all projects that have 20+ units
- Projects where more than 20% of the total space is used for non-residential purposes (i.e. commercial space) are ineligible
- HO-6 Insurance: (Walls-In Insurance) (including 2-4 unit projects)- This updated policy now requires the borrowers to obtain a “walls-in” coverage policy unless the project can provide evidence that the master policy provides the same coverage. Master policy must include replacement of improvements and betterment coverage to cover any improvements that the borrower may have made to the unit. HO-6 policy must be for at least 20% of the unit’s appraised value.
New Construction Condo Projects (5 or more units in project)
- Pre-sale on new construction is limited to 70%
- All units, amenities and common areas within the project must be 100% completed and cannot be subject to additional phasing
- New Construction condo projects need to go to Fannie Mae for approval
2-4 Unit Condominium Projects
- There cannot be more than 1 investor unit in project
- No owner may own more than 1 unit in project