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Fannie Mae Eases Condo Guidelines

Orange County, CA –   Sweet news trails impressive home value gains for condos.  This week Fannie Mae released its Selling Guide 2014-13, easing condo guidelines and offering some cause for celebration! “The updates provide greater clarity, simplify the project approval process, and make it easier for lenders to originate loans secured by units in projects.”  Visit Fannie Mae  

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“Warrantability” is a mortgage term which describes whether loans in a given condo building are eligible for purchase by a government agency such as the VA, the Federal Housing Administration (FHA), or Fannie Mae and Freddie Mac. Read More

Remembering the Condo Approval Process – After all, it was only yesterday!  Certainly, we remember the massive losses after the market meltdown.  Hence, the implementation of stricter guidelines.  Determining whether or not a project was “warrantable” became a key factor for lenders.  To add, financing options for the condo were limited (and still are in comparison).  As a result, purchasing a condo became a challenge even for well-qualified borrowers.

Evaluating a project’s “warrantability” was sometimes a painstaking process.  Generally speaking, the financial health, ownership mix ratios and even “type” of condo (more on this below), for any project were measured carefully against a list of non-warrantable items.  Consequently, if any non-warrantable item was identified, closings were either delayed or left dead in the water.

Eventually, the well-qualified borrower began to assume that the measure of the building had taken precedence over their credit worthiness.  In some cases, this was true.  Some of the toughest scenarios included those who had already signed sales contracts with no knowledge of whether or not the building was warrantable.  Discovering later down the line that the project was not warrantable was maddening to say the least.

To further complicate the process, lenders in Orange County served a mix of buyers.  For instance, FHA financing could only be used in projects that were FHA approved.  Other scenarios include resort condos that sprinkle the Orange County area.  Until recently, lenders had little to no guidance on resort condos or condotels.  Determining project “warrantability” for the FHA approved or resort condo became particularly difficult because they were not always easily identifiable.

Let’s Get To It! How do the revised guidelines ease the process of purchasing a condo? (NOTE:  These are just a few of the highlighted changes that have taken effect immediately).

  • LTV’s for cash-out refi’s for fixed rate products are dropping from 85% to 80%
  • Beginning in May, if one borrower does not have a credit score, the mid score from the other borrower will be used for pricing instead of the lowest tier.
  • Now 15% of HOA dues can be past due for 60 days instead of 30
  • Commercial space allocation from 20% to 25%
  • One owner can own up to 2 units in a project consisting of 5 to 20 units
  • More clarity on 15% of non-incidental business income allowed (up from 5%)
  • Permitting live-work projects
  • More Guidance on difference between resort condo and Condotel
Though this graph is not specific to Orange County, you can see where Condo home values have outpaced the Single-Family Residence in 4 of the 5 major cities. See More

Though this graph is not specific to Orange County, you can see where Condo home values have outpaced the Single-Family Residence in 4 of the 5 major cities. See More

With eased guidelines, the opportunity to respond to the condo in a financing capacity is greater than ever! I’ve included the Case-Shiller graph to demonstrate this opportunity. Earlier this year, we saw the rise of condo home values outpace that of the single-family residence for the first time in… I can’t remember!  Though values have since slowed, eased guidelines should help in the following ways:

  1. 1.  Greater clarity regarding “warrantability” will make it easier for lenders to provide financing for those purchasing condos
  2. 2.  Though the increase in value has slowed, rates remain low and buyers are now working with positively augmented purchasing power!

Bottom line:  “The majority of the topics underwent significant editing.  [New guidance was added to help lenders interpret these guidelines], existing policies were clarified, and like content was consolidated.”   If you’re considering purchasing a condo in Orange County, now might be a great time to do so.  Let me know if I can help!

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