If you are buying a condo with a mortgage, you find out pretty quickly about the condo approval process. Typically, condos go through either a full or limited review. Of course, limited is easier which we will explain further in this article. Going through the full condo review process results in more denials because of high rental concentration or other factors. Most condominium complexes are primarily made up of second home and investment condos. Investment condos are otherwise known as rental condos. So, by nature many of these condo purchases require the full review. Fortunately, the condo approval process just became easier! Let’s explain the levels of condo review first so you know the reasoning and why this is good news.
Full Condo Review Vs Limited Condo Review
First of all, if a condo is already approved with Fannie Mae, FHA, or VA, then the process gets much easier. But, the condo review process comes in when it is not already approved. So, what is the big deal with condos getting approved? Actually, lenders and agencies have enough statistics to know that certain characteristics cause a higher chance of foreclosure and/or property value decrease. Thus, the higher risk means more chance of a full condo approval process. The problem with full reviews when buying a condo is there are potential issues that come up on the lender condo questionnaires. Examples include not enough reserves in the annual budget, too many units with past due HOA dues, too many rentals, and just taking too long to provide necessary documentation for a closing. Limited reviews are fast and don’t get into reviewing so much information. Although, just because a loan program doesn’t require this information doesn’t mean a buyer shouldn’t dig further. Buyers are investing into a partnership with an association and should make sure that it is a healthy entity. Who would want to partner in an association where it doesn’t have funds for repairs or improvements? What if a large percentage of owners are past due? That means an increase of dues for the remaining owners. Foreclosures could hurt values and there is so much more. This doesn’t mean to skip on buying a condo, but it does mean working with your Realtor to verify it makes sense for you. Like many condo buyers, there is the desire to own a condo but also get rental income to offset costs or maybe even make a profit.
Buying an Investment Condo Just Got Easier!
Up until recently, all investment condo purchases required a full condo review. As mentioned above, that means more documentation that may deny the condo. At least it meant a longer process. But, now buying a rental condo with 25% down qualifies for a limited review with a Fannie Mae conventional loan! This may not seem like much until you actually decide to buy a condo. But, Realtors and mortgage lenders dealing with this every day realize how big this is! Basically, this review includes verifying appropriate insurances in place and nothing huge wrong with the complex. Of course, it must still be appraised as well. Quite a big deal for the condo market. Although, currently we are not able to offer this in Florida.
Realtors, Sell Condos Easier Now!
The term “non warrantable condos” gets thrown around a lot and typically the reason is for higher than 50% rental concentration. A complex with a higher number of rentals would cause issues with a conventional loan full condo review. But, when the investor concentration isn’t reviewed, all of sudden more condos get approved.
Condos Eligible for Limited Review:
- Primary residence 10% down or more
- Second home 25% down or more
- Investment condo 25% down or more
Besides helping Realtors, this helps condo sellers, condo buyers, condo values, condo associations, mortgage lenders, and more.
Other Helpful Articles for Buying a Condo
Condos are a popular topic because they offer low maintenance living and often in coastal or other fun areas. Luckily, we have other very helpful condo articles that explain options available for condo buyers and sellers. Check them out and give us a call:
- Searching for FHA Approved Condos
- VA Condo Approval Includes High Debt Ratio, Paying Off Debts, and More
- Searching for VA Approved Condos in Your Area
Also, keep in mind that these rules do not apply to townhomes. Not sure if the property is a townhome or condo? Check out “How to tell the difference between a condo and townhome“. Contact a loan officer today!