- No more than 15% of the unit owners may be over 60 days past due on their condominium fees. Exception: Not verified on a limited review...and thus not an issue for primary residence purchases with 10% down or investments with 25% down.
- No more than 35% of the square footage in a condominium may be dedicated to commercial use.
- In a project with 5-20 units, no entity may own more than 2 units. If a condo has 21+ units, then one entity may own up to 20% of the units in a project. These limits can be superseded and a project is approvable anyway in the following scenario:
- If one entity owns up to 49% of the units in a condo (but not more)
- Pays their dues on time
- The project does not have pending special assessments
- The entity owner is selling one of their many units to a purchaser
- The entity owner is actively working to market their units with a goal of reducing their ownership to 20% of units or less
- FYI: In some cases, even if a non-profit owns multiple units, if these units are owned for the purpose of providing affordable housing then their single entity ownership is not an issue.
- In the event of a foreclosure, the mortgage company may not be responsible for more than 6 months of past due condominium fees.
- If the condominium association is currently involved in a lawsuit, we must review the extent of the liability that the association will endure with the suit. We are especially concerned if the lawsuit is with regard to safety, structural soundness, or habitability of the project.
- If a buyer is an owner occupant, we do not care about the investor ratio. The investor ratio is the percentage of units owned by investors rather than owner occupants who live in their unit. But if the buyer is an investor, and the project consists of 5 or more units, then no more than 51% of the units can be owned by investors.
- At least 10% of the income from the association must be dedicated to the reserve fund (Note, not required on a limited review)
- We must verify that the condominium has adequate insurance – and there are several types of insurances that are required. See this link for more info on the insurance requirements.
Please note that for Fannie Mae approval, that they may make an exception if any of the above rules is not met (other than insurance). An exception request is done through the CVAS Waiver process – this review can be requested by Fannie Mae once all condominium related docs are in. It’ll take Fannie Mae about a week to review, but they may ask for additional documentation or explanations from the association. Freddie Mac does not make exceptions.
Freddie Mac also has an exception process, called the Condo Project Advisor. Noteworthy with Freddie Mac exceptions is that they may consider multiple exceptions on one project, whereas in my personal experience we haven’t been able to get approvals from Fannie Mae with more than one exception.
If a condo meets Fannie Mae’s or Freddie Mac’s requirements, it is warrantable. If a condo cannot be approved for sale to Fannie Mae or Freddie Mac, then there may be an opportunity to get financing through a non-warrantable condo loan. This would be a portfolio loan program with greater down payment requirements and higher interest rates.
The approval rules ease significantly for 2-4 unit condos so please read that link if necessary.
Want to check if the condo is FHA approved or VA approved? See these links to check. Also, if a condo is FHA approved and was approved through the HRAP method (meaning FHA approved it internally), then it’s eligible for conventional financing.
Questions? Ajaffe@firsthome.com or 240 479 7658
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