Post by Rob Keefe, President, Keefe & Associates

Of the various mortgage loan underwriting changes implemented after the financial meltdown, few have had as great an impact as those affecting condominium loans. Stung by big condo losses in Florida, Arizona, and Nevada, federal regulators have made getting a condo loan considerable more difficult. Remember that the federal government directly or indirectly controls over 90% of all new mortgage originations in the U.S. Let’s look at a few types of condos and the issues associated with each:

Second home-oriented condos of which there are plenty in our area, have become difficult to finance through FHA, Fannie and Freddie. The new FHA guidelines now require 50% owner occupancy in a condominium project. There are few resort condos in our area which meeting this guideline. Recommendation: work with a local lender for a loan they keep in-house. Expect to take out an ARM.

New construction condos. To be eligible for FHA underwriting, new construction condos must have 30% pre-sold and a have 30% owner occupancy. Again, your solution to work with a local lender. Most condo developers have pre-underwriting loan options available for purchasers.

Investor concentration in projects. The feds do not like any one investor owning too much of a given condo project. They have placed a limit of 10% of units under the ownership of any given investor.

Condotels/condo hotels. These projects have become nearly unfinanceable. They are not eligible for any government-backed mortgage. Work on your financing options early and expect to come with a large down payment.

Condo projects in financial difficulty. FHA would like to steer clear of any troubled condo projects. As such, mortgage underwriters must evaluate the income statement of the condo associations. Any projects in which more than 15% of the owners are delinquent on dues by more than 30 days are deemed ineligible.

Site condominiums, effectively single-family homes on condominium-ownership lots, are exempt from condominium underwriting requirements. This includes all the single family condominiums at projects such as Geneva National and Abbey Springs. These homes are underwritten the same as any other single family home.

The current condominium market in the Lake Geneva area has never been more favorable for buyers. There are some incredible deals out there which we will not see again anytime soon. Obviously, there are many issues to consider and obstacles to navigate when financing the purchase of a condo. Work on financing early and consider using a local community bank familiar with the condo project. Finally, give serious consideration to an adjustable rate mortgage with a fixed initial term.