The mortgage crises might not only be something you see on the evening news; Mortgage financing changes might affect you and I right here at home. Many people like the condominium lifestyle. Younger people like the fact they don’t have to be responsible for the yard and grounds. Empty-nesters like them because they can lock the door and travel, while the association handles exterior maintenance.
If you own a condominium and want to sell it, or want to buy one you may learn more about current financing than you wanted to know. There have been major changes to underwriting criteria for condominiums over the past year.
Private Mortgage insurers are the folks that make 5% and 10% down-payments possible.
Condo Financing will be difficult for a while
For a fee, they insure the loan to 20% of the sale price. Due to high losses in many area’s of the country, mortgage insurance can be very difficult to get. If you can put 20% or more down, this won’t be your problem. One mortgage insurance company recently notified some regions that they wouldn’t do business in many states and individual zip codes.
The largest two sources of money for condominium loans are Fannie Mae (FNMA) and Freddie Mac (FHLMC); Both have made sweeping changes to underwriting. They have become much more critical of the homeowner associations, the properties they make loans on and, of course, the buyers. One change is they want the Owner Occupancy Rate to exceed 75% home owners. That means if more than 25% of the units in the project are rented, financing may not be available.
FHA is very popular financing in Alaska. The down-payments are under 5% and they are more flexible on buyer debt ratios. Condominiums have had to be built under FHA inspections and to their specifications, or in some cases individual units could become “spot” approved. FHA announced recently they are pulling all approvals from existing projects on October 1, 2009. Each project will have to resubmit for FHA approval. Unfortunately, the location that will approve the new submissions believes that with the new work-load, they anticipate as much as an 18 month backlog for approvals.
Unfortunately, restricting financing will only increase the problem buyers and sellers have. If financing isn’t available, prices will have to come down. If sellers can’t sell they may try to rent, which decreases the owner occupancy rate in the building, which further affects the ability to sell. Worst case, more sellers will choose to walk away from their condo when they can’t sell either because buyers can’t get financing or they can’t lower their price to the market.
Boy, that’s going to have an interesting effect, won’t it? I mean, it looks like (to me) that the majority of new housing for the past several years has been in condos.
I’d imagine that’s going to be a tough thing…
Comment by Eric W — August 22, 2009 @ 10:57 pm