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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A Simple Way to Avoid Mortgage Paperwork Frustration

LOX…..no not what you have at the local deli on a bagel. This is an acronym in the mortgage industry for Letter Of Explanation. Please don’t ask why isn’t it LOE. It’s a mortgage industry mystery.breakfast-991821_1920

So, what is the LOX? Imagine you had something on your credit that wasn’t exactly perfect. You would be required to address the issue in writing. I have seen a lot of clients stress over this. The key is to keep your explanations as simple as possible. Don’t leave anything to the imagination.

It is inherent in our business to think negatively. It’s a DNA thing. With that in mind, you should begin your LOX with a simple “To Whom It May Concern” salutation.

Resist the urge to vent. You can hold the whole “the jerks at (fill in the business/bank/law firm) were out to get me” explanation for your next cocktail party. For lending purposes, simply state how it happened, how you realized the error, and how you don’t plan to have it happen again.

Boom.  Done and done.

Unless it is a mortgage late payment in the past 90 days the letter will suffice. We don’t like asking for them, customers don’t like writing them, but underwriters always ask for them.

This LOX may not be as delicious, but it isn’t poison either.

Mortgage Tip of the Week: You don’t have to pay monthly PMI.

Private Mortgage Insurance (PMI) has been a necessary evil in this industry for decades. If banks had their way everyone would put 20% down. This mentality is what created the need for private insurance companies to issue defaulters insurance that covers the bank in case of foreclosure.

The easiest way to eliminate it is to buy it out all at once with a single premium policy. The cost would range and is usually converted to a percentage of the loan amount. So instead of paying a recurring payment monthly you can pay it off all at once.

The advantage is a lower down payment paired with a lower monthly payment. When you buy a property the seller can actually pay the PMI off as a sales concession. Don’t expect the rock bottom asking price, but it is a win/win for you and the seller.

Ask your Mortgage Counselor about this.

(P.S.: Take a look at AFMSI.  We post industry news and related articles on our LinkedIn, Facebook, and Twitter pages.)