At various times over the last 10 years, getting a mortgage on a condominium in California could have been quite the challenge for a home buyer. However, some changes that will go into effect at the end of June, 2018, will reflect Fannie Mae’s (FNMA) increased flexibility and sensibility with lending on condo, co-op and planned unit development (PUD) projects. We’re going to focus here just on the condo part and explain the key elements that should make it a bit easier for some buyers in the months ahead.
Single-entity ownership poses a risk for a condominium lender because should that single owner who owns a high percentage of the units in the complex run into financial difficulty or do something financially irresponsible, it could materially impact the financial health of the entire complex. The changes in our update here allow the following:
- Waiver of the single-entity ownership requirement when the purchase transaction will result in the reduction of of single-entity concentration.
- Units held by non-profits, affordable housing programs or institutions of higher education are exempt from the calculation.
- Single-entity ownership in projects with 21 or more units is increased to 20% (from 10%).
Projects can now exempt commercially owned or operated parking spaces from the project’s commercial space calculations. This item, for example, can be a big factor in the city of San Francisco. Another significant change is the allowance of commercial space in the project to increase from 25% to 35%.
Primary home purchases of condo properties have long benefited from the “limited review” which is an automated and streamlined process that determines the eligibility of the condo project very early in the loan process. Up until now, a limited review was never an option on an investment property so as a lender, we knew that when an investor went into contract on a condo, we’d have to obtain all of the condominium documents (CC&R’s, budget, condo questionnaire, etc.) to approve the project itself. Now, with a limited review a possibility up to a loan-to-value of 75%, many condo buyers will avoid the high bar that had been previously set.
Two- to Four-Unit Condo Projects
Waive project review requirements aside from some basic requirements (insurance, for example).
These are some far out changes to condos and I can certainly see them immediately helping future generations of buyers and investors. And they’re exactly the sorts of common sense adjustments the government-sponsored entities should be implementing. If you’re looking to purchase or refinance a condominium in California, or if you’ve tried and failed to finance a condo in the recent past, let me know if I can help at any time.
Ground control to Major Tom,
Vice President of Mortgage Lending
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