4 Things Your Lender Wants to Know About Your Condo
When you’re purchasing a residence, your lender needs to get all up in your business. It’s not about being nosy, it’s just part of the process (especially when looking into your credit history). The same applies to the property you want to buy—specifically if it’s a condominium.
For first-time homebuyers or new investors entering the market (as well as people who aren’t super enthused about mowing grass or shoveling snow) going the condo route may be preferable to buying a single-family residence, and it can also serve as a great investment. But there are some lending rules exclusive to condos that you should be aware of before you embark on the process.
Our lenders consider several variables when underwriting a condo loan, but their main concern is whether or not the condo building is warrantable (this will differ between existing condo buildings and newly constructed condo buildings).
Here are the 4 things your lender will want to know when assessing the warrantability of a condo building:
Are there any pending lawsuits against the association?
A lawsuit is a major cause for concern. Don’t sign a contract or make an offer until you know the details. Personal injury suits or foreclosure suits generally won’t scuttle your loan. Structural defect suits are another story, so be sure to speak with our mortgage professionals before moving forward.
How many units are rented to non-owners?
A new condo building requires at least 50 percent of the units to be sold to owner occupants, while the rest can be rental units. An established condo building can allow more than 50 percent of the units to be rentals, provided you plan on occupying the unit you are purchasing.
Does the building allow blanket mortgages?
Blanket mortgages, which cover two units under one mortgage, typically are not acceptable. But there are many components and you may be within the guidelines, so consult with our mortgage professionals to be sure.
How much money is in the association’s reserve fund?
To be sure that the condo building association has sufficient savings, your lender will want to review the association’s annual budget if you are putting less than 20 percent down. Lenders require an annual reserve contribution amounting to 10 percent of the building’s budgeted annual income.
Summing Up
A condo building is warrantable if:
- There are no pending lawsuits
- The occupied/rental percentages
- The association does not allow blanket mortgages
- The association has the required monetary reserves
When shopping for a condo, be sure to ask the seller about all of the above so you know whether you’re looking at a viable purchase or if you should move on. Also, while the size of the condo building has no bearing on warrantability, some lenders prefer not to lend in projects that are too high (more than eight stories) or contain too few units. Be sure to let your mortgage professional know the specifics.
So there you go. Get all your ducks in a row and soon you’ll own a condo!
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