New condo lending guidelines may add add’l hurdle
Jan 2011 13

A good job, a big down payment, and great credit will go a long way to getting you approved for your mortgage loan.

There’s just one other thing you’ll need and it’s completely out of your control.

If you’re thinking of buying a condo in a new project, you will have to hope that the project is able to qualify for third-party approval or you’ll likely find your options to be limited when looking for a lender.

The New York Times has a great article on this in yesterday’s newspaper.

The guidelines and approvals come from Fannie Mae, the buyer of home mortgages; Freddie Mac, its smaller competitor; and the Federal Housing Administration, which insures loans. The rules were meant to help strengthen their balance sheets as they faced a surge of loan defaults in the condo market.

“If a condo project is not approved, it makes it very difficult to get financing for a first-time purchase or refinancing,” said David Adamo, the chief executive of the Luxury Mortgage Corporation in Stamford, Conn.

According to the article, the National Association of Realtors estimates that as many as 23,000 condo projects nationwide may lose FHA approval over the coming months.

In order to qualify for FHA approval, generally the project has to have 30 percent of its units sold, the condo association must have a certain amount of money set aside in reserves, and there are limits on how many units can be investor-owned. Fannie Mae’s and Freddie Mac’s guidelines tend to be stricter.

If you can’t get a loan the “traditional” way, you can always use a local lender or through something like your work’s credit union. You may end up having to pay a higher interest rate, however.

What it means to you is that you should do a good amount of due diligence before making an offer on a condo in a new development. Find out if it qualifies for approval. Make sure your offer is contingent upon getting mortgage loan approval by a lender and that you can withdraw without risking your money, if it doesn’t.

Talk with a mortgage loan professional.

More: Stricter Lending Guidelines for Condos

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