Some information on condo's from a successful realtor.

Why are Condos so hard to finance?

So let’s talk condos. There are 3 types - Warrantable, Non Warrantable! And FHA/VA Approved
 What is a Non-Warrantable Condominium?
 If this condo project can be financed it is with very few niche lenders and a higher rate and heavy down payment 30%+
 A Non-Warrantable condo is any condo that does not meet Fannie Mae guidelines. There are many rules and regulations to “Warrant” a condo with Fannie Mae. The five requirements for Fannie Mae to approve or warrant a loan in condo follow below. Fannie Mae Requirements for Warrantable Condos
 •1.    No more than 10% of the total units in the complex are allowed to be owned by a single entity    (including the sponsor).
 •2.    The number of owner occupied apartments must equal 70% of the total units (only apartments owned and used as a primary or secondary residences are considered owner occupied).
 •3.    There can be no litigation concerning the structure/soundness of the building (ex. when the board decides to sue the developer for shoddy construction)
 •4.    There must be a 10% reserve (of the yearly income) built into the annual budget that is recurring year after year.
 •5.    No more than 20% of the building’s total square footage is commercial space.
 What is a Warrantable Condo?
 Financing for this type of project is usually available with a minimum of 10% down if you can get MI Coverage
 The term “Warrantable” refers to a condominium complex with features that lenders view as favorable in minimizing their risk exposure. Lenders feel that Warrantable features protect a complex from future hazards and situations that could threaten the value of the units. Warrantability refers to the condominium complex as a whole, not the individual units.
Features of a Warrantable Condo:
 For a condominium complex to be considered “Warrantable,” it generally must meet the following Condo Warrantability requirements:
•Most of the units are owner occupied (not renter or investment properties)
 •On established and existing projects, at least 90% of the units must be sold
 •For new and currently converted construction, 70% of the units must be pre-sold (closed or under contract)
 •15% or less of the units can be 30 days delinquent on HOA dues
 •No more than 10% of a project can be owned by a single entity
 •No more than 20% of the project can consist of non-residential space
 •The Homeowners Association must have at least 10% of its budgeted income designated for replacement reserves
 Additionally, other conditions do exist—pertaining to building insurance, HOA budget, etc., but the above conditions are generally deemed the most important to Fannie Mae and Freddie Mac—and therefore to most lenders.
Steps to see if a Condo is warrantable There is not an inclusive “Warrantable Condo List.” However, several steps can be taken to determine the eligibility of a complex, including:
•Ask the property management company or the real-estate selling agent if the complex is considered “Warrantable.”
 • See if the condominium complex has met Fannie Mae Project Standards. This can be searched by state on the following website: Warrantable Condo Search
 •Have your lender provide you or your real estate agent with a Condo Cert (questionnaire) to be filled out by the Property Management Company. Note: Companies often charge a fee to fill out a Condo Cert.
If the project is approved then 3.5% down for FHA or Zero down for VA can be used.
 For FHA the condo needs to be approved, you can find the FHA approved condo list at: https://entp.hud.gov/idapp/html/condlook.cfm
 Same for VA, it has to be approved; the VA approved condo list is at:https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch
 FHA Has pretty much the same guides as Fannie and Freddie.  There is no longer the option to do spot approvals on Condos anymore.
IN THE STATE OF ARIZONA WE HAVE:
 470 TOTAL CONDO PROJECTS
 366 TOTAL PROJECTS APPROVAL EXPIRED
 104 TOTAL PROJECTS APPROVED
 THAT’S ONLY 22% OF ALL CONDO'S AVAILABLE TO BE FINANCED
 And hence why we have so many frustrated buyers in AZ and agents alike!
Guidelines for FHA/VA approval:
 • Construction of the subject project or phase must be greater than 90% complete.
 • No more than 15% of the units can be past due on monthly Homeowners Association (HOA) dues
 • At least 51% of the units in the project or phase must be sold and conveyed to owner-occupants for use as a primary residence or second home. (It is possible for this to be waived if you are putting down at least 20%).
 • All facilities related to the subject project must be owned by the homeowners’ association or unit owners.  • No single entity owns more than 10% of the units in the entire project.
 • No more than 20% of the total building square footage can be used for nonresidential purposes.
 • If the project is a conversion, all renovation work must be completed to all units and common elements.
 So now you know as much as me - lets revisit some key points.
 If taking a listing don't put on the MLS until you know the above.
 If working with a buyer who wants a condo,  have them talk to their lender - condos are a different breed of home and the buyer needs  to be educated in issues such as fidelity bond, reserves, master association policies - far in advance of worrying about the CC&R's.  Rates tend to be higher, ratios tighter, LTV's more restrictive as it isn't so much a mainstream product as is an SFR.  And with the recent foreclosure fiasco and the highest concentration of defaults being in Condo's, lenders are nervous to jump back into this segment until the condo arena has stabilized much more.