Why Condo Loans Can Be So Hard to Get
November 3, 2015
For many first-time home buyers, condominiums are an affordable way to get on that first rung of home ownership. Yet financing for condos can be a challenge to get. That’s because condo financing has two sides that must be squared in a way that single-family financing doesn’t. On the one side of this financial equation, you have the household that wants to buy the condo unit.
As with single-family buyers, how much credit the household can qualify for and at what terms depends on their personal financial situation and their credit profiles. On the other side, you have the condominium project, and it’s on this side that constraints can come into play beyond the buyers’ financial picture. How many units in the condo project are owned and how many are rented? Is there retail or other commercial space on the ground floor of the building? If so, what percentage of the project is taken up by this non-residential use? And what about the board that governs the condominium project? This board has to sign certifications about the project. And there are other hurdles on the condo side of the equation.
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Given these variables, it’s possible you could have a household that’s a solid candidate for a mortgage loan but the lender can’t provide financing because of issues on the condo side of the transaction.
It’s because of these long-standing challenges that NAR has been communicating with HUD for several years to get changes to federal rules so more condo projects are FHA certified, meaning lenders can make mortgage loans to households trying to buy in these projects.
Two weeks ago NAR President Chris Polychron testified before a House panel about the matter and promises NAR’s support for legislation that’s been introduced that would make several important changes to FHA rules. Among other things, it would be less burdensome for condo boards to get their projects certified, and the ratio of units that are owned versus those that are rented would be made more in line with market dynamics.
NAR’s efforts are a top story in the latest Voice for Real Estate news video. The news program also looks at NAR’s effort to preserve so-called g-fees for housing. G-fees are fees the two secondary mortgage market companies, Fannie Mae and Freddie Mac, charge lenders to help offset their risk for guaranteeing conventional residential mortgages.
NAR’s concerned by proposals in Congress to take income generated from those fees for use in non-housing related programs. That could make mortgage financing more expensive for some home buyers, since it would be harder for Fannie and Freddie to manage their credit risks.
As a result, NAR has issued a Call for Action to let lawmakers know REALTORS® want to keep that income dedicated to the mortgage market. Already more than 130,000 REALTORS® have sent letters and more continue to be sent.
The news video also looks at the latest home sales numbers and new survey results showing almost 90 percent of Americans view home ownership as a smart financial investment, among other findings.
Updated: December 14, 2018