Key Factors to Consider When Financing the Purchase of a Condo
Mike Tarleton – Bank of England Mortgage Sales Manager, NMLS #264821
There are a few key factors to consider if you are in the market to buy a condo and will be financing it rather than paying cash. The number one factor to consider is that the condo project must be approved for financing, just like the borrower must be also approved for the loan.
What makes a condo warrantable vs. non-warrantable? Basically, this means the condo project has been deemed to meet the criteria to be eligible for Fannie Mae or Freddie Mac loans, so that loan will be underwritten to these guidelines. This gets you the best terms available for low down payments and 30-year fixed rates. With warrantable condo loans, the minimum down payments are 5% for a primary residence, 10% for second homes and 15% for investment properties.
Recently however, we have seen this announcement from Fannie Mae regarding them limiting their concentration of 2nd homes and investment properties, and many investors that buy mortgage loans are not lending with less than 20% down, and rates have increased some as well (but are still low when looking at historical data). https://www.housingwire.com/articles/fannie-mae-tightens-standards-oninvestment-properties/ . As of the date of this writing, Bank of England Mortgage is still offering warrantable condo loans from 5% down for a primary home and 10% down for a 2nd home.
Non-warrantable condos can also be financed but typically have higher rates and down payments, shorter loan terms and sometimes adjustable rates rather than fixed.
A common misconception is that Fannie/Freddie has an approved list of condos on which they will make loans. In reality Fannie/Freddie have guidelines for what makes a condo eligible to be financed with these products and they leave it up to the lenders and investors to determine if a specific condo project does or does not meet these criteria. This can be found here: https://singlefamily.fanniemae.com/media/8466/display.
Also of interest is what makes a condo not eligible and you can find these characteristics here: https://selling-guide.fanniemae.com/Selling-Guide/Origination-thru-Closing/Subpart-B4-UnderwritingProperty/Chapter-B4-2-Project-Standards/Section-B4-2-1-General-Project-Standards/1032993971/B4-2- 1-03-Ineligible-Projects-10-07-2020.htm
If you are in doubt as to whether a condo is warrantable or not, consult your lender and realtor and they can advise on the status of a particular condo project. Certain key factors can be assessed as well to determine the likelihood of warrantable approval, such as:
• Does the condo name in include the words Resort or Hotel?
• Do they allow < 3-night minimum rentals?
• Is the HOA in the rental business and do they make money from renting units?
• Does the budget put at least 10% towards reserves each year?
• Are there any open lawsuits?
Bank of England Mortgage Sales Manager, NMLS #264821
[email protected] | www.bankofengland.us
All information is for informational purposes only. Information is subject to change at any time. This is not commitment to lend or extend credit. All loans are subject to credit approval including credit worthiness, insurability, and ability to provide acceptable collateral. Not all loans or products are available in all states. Bank of England is not affiliated with any government agency. Bank of England Mortgage is a division of Bank of England. NMLS 418481. Member FDIC. Bank of England Mortgage is not affiliated with any realty company.