Condos????? Unwarrantable or Warrantable? Do you know what makes a condo warrantable or unwarrantable (doesn’t meet Fannie/Freddie standards)? This sound familiar? Ever have a buyer fall out a day or two before closing because the lender came back and said the condo isn’t eligible for financing? Read this and your life will be easier with condos…….. The fact is…. it’s just not a few things that make a condo unwarrantable. Most agents (even most lenders sadly) think as long as rental percentage is low, most units are conveyed, and budget is fine that they are good. That’s a big mistake because there are literally dozens of “things” that can make a condo unwarrantable or worse yet un-financeable (cash only). Some examples are, delinquency of dues, lawsuits, owner occupied vs. investment percentage, reserves in the budget, commercial space percentage, fractured ownership, recreational or short term leases, common elements complete, still in construction phase, additional phases coming, HOA turned over yet, fidelity bond requirements, percentage of and the list goes on and on and on….. For the last 10+yrs, I have worked on several dozens of projects and with developers/builders/agents on obtaining FHA project approvals, Fannie Mae PERS approvals, Fannie CPM approvals, Re-phasing, bundling unwarrantable financing, and converting unwarrantable projects to warrantable (my favorite). I have also done a handful on condo presentations to real estate groups over the years and the basic theme has been getting the condo questionnaire/certification up front. I believe the listing agent at the listing appointment should have a heart to heart talk to the seller about paying the $25-$200 fee to the HOA or management company (sometimes they are even free) to get the HOA to fill out one form (example attached) and obtain the most recent years HOA budget. The pitch to the seller from the agent at the listing appointment goes……“It’s part of selling the condo Mr. and Mrs. Seller. This way we can advise the buyers and their lender on the type of financing needed up front before accepting an offer and wasting everyone’s time. “ Once you obtain the condo cert/questionnaire you should then promptly review closely with a lender who is experienced in Condo’s. If you do not do this it is no different than accepting a buyer bid without a preapproval. Crazy right? Likewise the buyer’s agent should ask the listing agent to see the condo cert before the offer is made. If the listing agent had it up front they could conveniently send it to them so they all make an educated decision with the buyer. It’s just good business. Otherwise you will write an offer, have an appraisal and/or condo doc contingency, takes days to get it from the HOA, the appraiser doesn’t have the right data, the buyer doesn’t want to pay the fee b/c he doesn’t know he can finance the condo, and the deal falls apart 2-3 weeks down the road? Sound familiar???? Not to mention, this condo cert/questionnaire data is also critical for the appraiser. I can’t tell you how many times I have seen an appraiser put bad data in a report b/c they didn’t have the condo questionnaire/cert up front. It’s even killed deals that otherwise shouldn’t have died. Also, on many occasions, I have been able to convert unwarrantable projects to warrantable with Fannie Mae waivers or even uploading the data and issuing a conventional project approval where it was normally by all standards on paper unwarrantable. You might be surprised what can go actually go warrantable with the right lender. The difference??? Warrantable is 5% down 30 yr. fixed loans. Unwarrantable financing (if you can even find a bank to do it) is 20%+ down and likely only an ARM loan. Big difference. A lot more folks (buyers) can do 5% down and want 30 yrs than buyers who have 20%+ down and have to do an ARM at a higher rate. Not to mention about 95%+ of all lenders/banks out there will not provide unwarrantable financing. And if you find a few lenders that do this type of portfolio lending they are usually limiting their exposure to around 15%-20% of the total units in the development. Just thought I would share this info with you to make life easier for everyone when working with condos. I believe if you work with condo’s you should know what you are selling/buying up front….not weeks after a PA is signed. As always, if you have questions on condos, call or email. I will be happy to help. Troy J. Fairbanks Branch Manager NMLS #525344 734-462-5990 x5201 734-452-5014 x5201 Efax 248-658-2794 tfairbanks@rossmortgage troyfairbanks.net - Click on the Facebook (like it), Twitter (follow me), or Linkedin icons here for more routine updates on markets, rates, and general mortgage industry news that may affect you. Stay informed!
Posted on: Wed, 30 Apr 2014 18:05:40 +0000
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