What’s up with condo financing?

 

I have many clients interested in condos in Miami Beach and the downtown, Midtown & Brickell areas of Miami.  Purchasing a condo in Miami has its challenges because of lending restrictions on buildings.

A gorgeous view from the Icon South Beach courtesy of SEF MLS and listed by Zilbert Properties. List price $3,750,000

If you have 25% or more to put down on a condo, then you are free to look at any building as banks will approve a loan with minimal “review”.  This means, the bank will check YOU out, but they will not ask as many questions about the building you choose to purchase in.

Most of us, however, do not have upwards of a 25% down payment  laying around, therefore, we must apply for a FULLY REVIEWED loan  – meaning the lender has to review the legal and financial standing of the condominium before they will agree to lend.

In order to purchase a condominium with 5% or 10% down (or any percentage down up to 24.9%), a buyer must pay the condominium association of the building he is interested in a fee to get a “full review condo questionnaire” filled out.  This condo questionnaire tells the lender everything they need to know in order to issue a loan approval.

You may have awesome credit, good savings, a great income, etc. and still be denied a loan because of the lender’s building review requirements.

Condo Questionnaires typically ask questions such as:

– number of units rented (hint: Fannie Mae just changed the rules on this one, and if mortgage insurance companies come on board, high rental ratios may not be a reason to decline your loan) It used to be if more than half the building is rented, the loan is a no go… however, this JUST changed the day before yesterday.  Now, if you will live in the unit (if the unit will be OWNER OCCUPIED) the number of rented units in a building does not matter.  Tell that to the mortgage insurance companies, though…. we’ll have to keep an eye on this one!

– does any one person own more than one unit and if so, describe (hint: if any ONE person or entity owns more than 10% of the units in the building the building will not meet lending requirements)

– how many units are 30 days delinquent on maintenance dues? (hint: cannot be more than 15% of units)

– are there any pending special assessments? (hint: as a buyer it is in your best interest to know this before you buy.  I do not know if it would cause the bank to decline or just to further analyze your qualifying criteria – ask your banker. I have an amazing banker if you need one.)

– Is the Condo Association involved in any litigation? (hint: if there is any litigation related to construction defects, the lender may have a problem granting any “reviewed” loan)

– how much does the building have in reserves? (hint: usually lenders are looking for 10% of funds collected to go towards reserves)

– what kind of insurance does the building carry and for what amounts?

usually condo questionnaires have about 35 questions on them, some more important than others.  The ones listed above are the big mamas and are usually the cause of many buyers not being able to purchase with a low down payment.

It is always helpful to work with a real estate agent who knows the buildings and knows to ask these questions before presenting an offer.  I visit the condo association when we visit the unit and attempt to get the “big mama” questions answered in front of my client, rather than have my clients spend $150 on a condo questionnaire on every building they are interested in. Some associations are nice and just tell you flat out, others will not say anything and you must submit a questionnaire and a fee.

The exceptions to this thorough analysis are condos that are Fannie Mae approved.  There are not many in Miami at the moment, but here is a list of the condo buildings that are currently Fannie Mae approved.  These are much easier to get a loan in.

I hope you found this article informative and helpful.  If you need an experienced and tech savvy agent who knows the Miami market inside and out, you can reach me at paula@greatmiamihomes.com or 786.663.4382.

Paula Barrera Scheer

EWM Realtors

A modern agent for a modern client.

*This article is advice from the first hand experiences of a veteran real estate agent and is not to be construed as legal advice. Real estate agents are not attorneys.  If you are in a real estate transaction and need legal advice, consult with a real estate attorney.