Fannie Mae recently made some fairly big changes to the condo underwriting process. While it may not affect everyone in the market for a condo, it will make all the difference for others. MND community member Ted Rood provided this excellent overview:
If you’ve ever financed a
condo, you’re likely familiar with the term “condo reviews”. These
reviews include analysis of condo complexes’ financials and insurance, breakdowns
on units’ ownership and residency, the percentage of owners in arrears on Home
Owners’ Association (HOA) dues, any pending legal actions, and more.
Lenders must obtain them on every condo loan, in one of two different
variations: “limited” and “full” reviews. If complexes don’t meet the
requirements, buyers in that HOA can’t get financing. Far more
complexes fail full reviews than limited, a distinction I always address with
clients early in the loan process.
Limited reviews are fairly
routine, consisting of a short questionnaire and insurance documentation from
condo management. HOA management companies typically charge nominal costs
to complete the questionnaires. Owner occupied condo loans with down payments
of at least 10% (25% for second homes) are eligible for limited reviews.
It’s fairly unusual for a condo complex to fail a limited review. I’ve
had numerous complexes fail a full review, yet meet limited review
however, all investment condo loans (regardless of down payment)
required full reviews, which entail added cost/time to acquire more detailed info
from HOA management BEFORE lenders even know if the complex meets full review
requirements! That’s a situation buyers, sellers, lenders, and agents all
find stressful. No one likes uncertainty in the home buying process.
Fortunately for rental condo buyers,
however, Fannie Mae recently announced that
investment condo loans with 25% or more down were now eligible for limited
reviews. Why is this a big deal? Rental condo buyers who put
25%+ down already get improved loan pricing from Fannie Mae, saving 2-2.75% of the loan balance (up
to $5500 on a $200,000 loan!) compared with those putting 15-20% down.
In short, many investment condo
buyers were putting 25% down, but still had to cope with the uncertainty and
cost of full condo reviews. They’ll be pleased to hear that
Fannie Mae’s logical guideline reform just made rental condo loans far simpler.
Fannie Mae also expanded their
Property Inspection Waiver (PIW) program to condos in June. A PIW is
often referred to as an “appraisal waiver”, and allows lenders to close certain
loans without the expense/time of appraisals. There’s nothing agents,
buyers, and sellers love more than hearing their transaction doesn’t need an
appraisal. PIWs are determined automatically by Fannie Mae’s automated underwriting engine Desktop Underwriter or “DU.”
Between these two guideline
revisions, Fannie Mae has made condo financing faster, cheaper, and far more
predictable. More predictable loans mean more closings, higher
condo values, happy buyers, sellers, agents, and lenders. It’s a big win for
everyone. Thanks, Fannie Mae!