Are You Considering Getting A Mortgage To Buy A Condo? Do Your Homework First.

As a seasoned mortgage loan originator, I know that condos are popular among first-time home buyers. After all, the average condo costs less than the average single-family home. Condos require less maintenance and many complexes offer amenities like gyms and pools, all of which are attractive to young, active owners.condominium-690086_1920

But condos aren’t perfect.

There are homeowner’s association rules and monthly dues or fees to cover association management and upkeep of common areas. Then there’s the fact that condos can be more difficult to buy (at least with a mortgage) than single-family homes. That’s especially true if you want to use an FHA loan to buy a condo. When you apply for a mortgage, the lender begins the underwriting process. The underwriting of your loan involves a process in which it:

  • Evaluates whether you have the means and credit to repay the loan.
  • Assesses the property you’re buying.

The investor wants to know that if you default on your mortgage it can sell your property and recoup most of its money. When you’re buying a single-family home, the underwriting process is pretty straightforward. We will appraise the home to ensure it’s worth what you’re paying for it and make sure there is a clean title (so somebody else can’t claim they own it).

When you buy a condo additional factors to consider include:

  • Any commercial space takes up no more than 25% of the square footage.
  • At least 10% of association dues are deposited in reserves.
  • Less than 15% of association dues are more than 60 days late.
  • At least 51% of the units in a new building will be owner-occupied.
  • The building is properly insured.
  • There’s no current litigation regarding safety, structural soundness, habitability or functional use.
  • No single entity owns more than 10% of units, except in buildings with five to 20 units, where a single entity can own two units.

These factors began playing a larger role in the underwriting process following at the onset of the housing crash in 2008. As a result, it’s simply more difficult to get a loan to buy a condo.

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So before you buy, simply do a little more homework to avoid any last-minute disappointment that could come from not being able to get a mortgage on the condo you want to buy. Ask to see the all the condo documents and ask the sellers the same questions the lenders will ask about the association finances and owner-occupied units. In many cases, you’ll be able to spot red flags right away. Ask your LO if you are unsure about anything related to the property.

And the most important tip: Meet the older woman dressed in a housecoat peering over the balcony. She knows more about the building and residents than anyone does.

Please take a look at AFMSI.com for more information on American Fidelity Mortgage Services Inc. Other blog posts can be found at themortgageking.wordpress.com. AFMSI is also on Twitter (@AFMSI3), Facebook, and LinkedIn.

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The History of Paper Trailing in the Mortgage Industry

Ever wonder why mortgage companies are so picky about the documentation provided for a loan?

Everything asked for today is a direct result of someone in the past skirting the law. Take initial cash deposits on homes. The mortgage company is not satisfied that you made a copy of your earnest money or initial cash deposit. They want proof you had the money (seasoned funds) and the papdocument-428334_1920er trail of the money being transferred to the seller.

Why?

In the 70’s and early 80’s when a buyer didn’t have sufficient funds to close on a purchase, the seller or builder would inflate the price of the home by the amount of the down payment. The buyer would write a check, make a copy and give it to the seller. In return the seller would rip up the check. The seller gets the net figure he was looking for, the buyer gets in with no down payment and when the housing market crashes the banks take on over-inflated properties. To the banks, having valid buyer skin in the game, is the protection they are looking for.

I feel it is important to know “why” behind mortgage documentation. To do that, I will give you a little history lesson. We in the industry don’t really relish asking for this documentation, and we know that clients would rather go through a root canal procedure than gather it.