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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Are Home Appraisals a Good Investment to Save Money?

Short answer: Yes. If an appraisal is part of your purchase or refinance transaction it is worth the investment.

But there are other things an appraisal can help with.

I have noticed a lot of reasonably priced homes with rather high tax bills. If you look at the history of these properties, many of them were purchased prior to the 2008 mortgage crisis.

It is hard to imagine that during the late 1990’s and early 2000’s, home values were increasing so rapidly if you bought a home with 5% down you had a good shot of getting rid of your mortgage insurance the next year. That is how quickly the homes were appreciating in our area.

How would an appraisal help now?

The appraisal is a third party assessment of your home’s value performed by a licensed taxes-646511_1280appraiser. It is not a market analysis that a realtor would give you. However, if you have a realtor you know, that wouldn’t hurt to get you started.

If the tax base was set on a $400,000 home purchased in 2005 and you bought the same home for $250,000 in 2016, chances are the taxes were based on the original purchase price. The average tax base for real estate in Illinois is 2.28%.

$400,000 x 2.28% equals a real estate tax of $9,120 per year.

$250,000 x 2.28% equals a real estate tax of $5,700 per year.

If you buy that $250,000 home today and the taxes end-up at $8,500, hooray for you! You got a bargain. But, your taxes could be a little on the high side—an appraisal for that purchase would be proof of that imbalance.

If you feel like your neighbors are paying less in taxes—perhaps it is someone you know with the same floor plan, or you just can’t believe you are paying so much—contact your local assessor’s office for a description of the review process. You won’t need an attorney unless your taxes are high (like $30,000 per year) then you might want one.calculator-385506_1920

Be prepared for this response: “Real estate taxes are a look back process and we have to incorporate what you were paying three years ago with what you pay now.”

That may have worked in 2010 when taxes were on the decline and assessors were averaging value loss. Local real estate values have leveled so that should have no impact now. Also be prepared to hear that the taxes cover a number of services that have all gone up in cost.  Be brave and press on.

This is where the appraisal comes in. It can be used to back your assertions. The good news is that it has worked in some cases to lower taxes. That depends on you bucking the trend of government waiting you out in hopes that you will get frustrated.

The positive in all of this: when you look at historic sales of properties, you will notice that of all the big ticket items you want to purchase, homes have actually been the only one that has become more affordable.