The process of purchasing a condo in Florida with a mortgage loan can be a hurdle-jumping experience. Add to that an investment loan instead of a primary residence or secondary/vacation home loan, and there can be plenty of surprises during the underwriting process. Once a buyer is qualified and approved, next is the process of the lender approving the condominium association to Fannie Mae, Freddie Mac, and/or the Federal Housing Administration (FHA) condo guidelines. Requirements are strict as many lenders saw their largest financial losses during the mortgage crisis and view condos as very risky. Lenders want to see a condo development that is financially healthy with a high percentage of owner occupants and low delinquency rates on condo and/or HOA fees.
A few of Fannie Mae requirements are:
- Owner-Occupancy Requirements: No requirement if a primary residence or 2nd home. If Investment property, at least 51% of total units must be owner occupied.
- No owner may own more than 10 percent of the units.
- No more than 15 percent of owners can be delinquent on condo dues.
Even if a condo meets these guidelines, mortgage insurance companies may not be willing to insure the loan or may require the buyer to increase their downpayment substantially (potentially up to 20% or more).
Condos that are not approved within these guidelines are labeled "nonwarrantable". The only options for buyers in this case are to pay all cash or find a local bank that would be willing to lend. However, an even more substantial downpayment (possibly 50% or more) may be required along with an excellent credit score. Buyers may also be faced with a much higher interest rate of possibly 2% over what they would be offered in a warrantable situation.
It really is in the best interest of a condominium complex to begin the process of becoming FHA- or Fannie Mae- approved if it is considered unwarrantable. This approval can increase the value of all the properties in the development.
If you are searching for a condo, you can check with the condo association as to whether they have already been approved under FHA or Fannie Mae/Freddie Mac guidelines. You can also try searching the U.S. Housing and Urban Devleopment website: https://entp.hud.gov/idapp/html/condlook.cfm
Are you thinking about buying a condo? Have more questions about how to buy a condo in Tampa Bay? Contact me today! I have closed on many condo deals and experienced all of the above. Let me help you navigate through the process with ease!
Lee Anna Pham, 813-440-7505, LPhamRE@gmail.com