Those fantasizing about buying their own home may need to adjust their definition of "dream house," especially if their vision included an image of a condominium. The recent economic turmoil caused in great part due to the crumbling of the sub-prime industry is making lenders reevaluate not only who they loan money to, but what type of dwelling can be purchased with the loan.
In direct response to the recent turn of financial events,Fannie Mae and Freddie Mac are reconstructing many of the lending policies that caused them their economic meltdown of recent days. One of the revisions to their policies include a revamping of conditions to gage the sustainability of the condos and multi-family homes applicants are interested in purchasing.
Home owner associations (HOA) are being more tightly scrutinized byFannie Mae and Freddie Mac to help mitigate the chances of new loans going into default. Before a mortgage will be granted for a condo or multi-family home, the HOA is having a light "stress test" applied to them where certain conditions are being closely looked at.
There are certain signs that help point the financial health of a living situation. For condos if too many residents are past-due on their HOA fees, the HOA has low cash funds or insufficient insurance or has not properly prepared to meet an insurance deductible, loan paperwork from the applicant may be rejected. Additionally, when it comes to multi-family housing complexes if there is a mix of hotel and resident-owned units, too much commercial space versus residential living or one owner possesses more then 10% of all the buildings units, those loan application will not pass the test.
Private mortgage lenders are also becoming more restrictive when it comes to mortgages for condos. Buyers who do not put down a large enough down payment, may be required to buy additional insurance coverage to protect the lender from default. Since many insurers are now tightening their coverage belts, not as many prospective buyers are qualifying for the necessary insurance and private mortgage lenders are rejecting their applications.
That is not to say that mortgages for condos and multi family homes are no longer out there, they are just more challenging to secure. To help improve your odds of qualifying for an affordable mortgage, take the steps to save up a large down payment, clean up your credit score and apply for a loan pre-qualification for the property in question. That way you can then take the appropriate steps to proceed.
