Policies, procedures, panic…OH MY! Following the 2009’s overcompensation trend, financing just got a bit more complex in the condominium market. Or, should I say condominium catastrophe?!? In this week’s entry, we will focus on the new hurdles that stand between a mortgage team (buyer and mortgage professional) and the prize: mortgage financing for a condominium purchase.

Fannie Mae–the government-sponsored entity (GSE) that mostly controls mortgage lending guidelines–implemented a new system earlier this year called Condo Project Manager (CPM). CPM maintains a list of ‘approved’ condo buildings and developments nationwide. If a condo building is approved, then Fannie Mae will allow financing of purchases according to previous standards (which include minimum owner occupancy rate, HOA stability, etc.) For buildings that are not on the approved list, we face the following new hurdles:

• The condo questionnaire
  This comprehensive worksheet includes building or development details such as the number of units, owner occupancy rate (number of units occupied as a primary residence), number of stories, etc. The basic questionnaire contains around 30 questions; however, depending on marketplace and type of loan, you may see upward of 75 questions.
• Condo Underwriting
  Just like the typical mortgage loan, the condo loan is then submitted to the lender for strict and thorough evaluation. Once submitted to underwriting, the borrower and the condo project (entire condo building/complex) must be approved. Borrower approval is typically obtained first and determines the level of approval needed for the condo project. If a full review is called for, CPM must approve the project. This approval requires documents outlined below. Word to the wise: when requesting a pre-approval letter from your lender, be sure they have the means to pre-approve a condo project, too.
• More Building Details
  In addition to the condo questionnaire, CPM also evaluates condo bylaws, deed restrictions & covenants, the master and/or blanket insurance policy, detailed HOA budget, balance sheets, corporate articles, profit & loss statements, and financial information, just to name a few. If the loan is going to hit a brick wall 10 days before closing, this may very well be the place.
• Attorney Review
  If the project is approved, the condo documents will then need to be reviewed and approved by an attorney. I would advise checking with the HOA attorney first as this may be the most cost effective (possibly free) way to gain attorney approval. You might also want to check with your lender or the title company. Their attorneys may be open to review and approve for a nominal fee. The buyer will ultimately be responsible for the costs involved; however, purchase agreements are open for negotiation. You should probably consider negotiating all of part of these additional closing costs.

Do you feel lucky, punk? In some cases the lender’s pre-underwriting software may find that a particular condo building is eligible for a limited review - which means CPM approval is not required. Unfortunately this only applies to detached units. Since most Houston condos are attached (either side by side or on top of each other), CPM approval is likely a requirement for most Houston-area condo purchases.

Important Note: The description above does not apply to FHA financing (only to Conventional loans backed by Fannie Mae or Freddie Mac). The new FHA condo policy goes into effect this month. More details in my next post.

Feel free to contact me directly for more information or to ask specific questions.

Brandon Polka
Envoy Mortgage – Houston Northwest
BPolka@EnvoyMtg.com
713-590-6900

share this post