Wednesday, September 30, 2009

Financing for condominiums….the challenges

Many of my customers are experiencing problems with obtaining financing for condominiums. So I wanted to share some information from the lenders I work with.

You can check for approved condominiums on two websites: 

My loan officer at Chase: Unless the condo is Fannie Mae approved & the investor ratio is less than 25%, they cannot finance.  Cash or seller backed financing may be the only way to go for them.

From my contact at BOA, the following information is straight from their policy and procedures manual.  It is very specific as to what qualifies and what doesn't. 

For attached non-owner occupied subject properties only, at least 51% of the total units in the project must have either been sold or must be under contract to be sold to owner-occupied primary residences or second home purchasers.

· All units, common areas and facilities in the project are 100% completed, and the project is not subject to additional phasing or annexation.

· Unit purchasers have control of the HOA.

· The HOA operating budget must be reviewed to determine that it is adequate and provides for the funding of replacement reserves for capital expenditures and deferred maintenance (at least 10% of the budget), and provides adequate funding for insurance deductible amounts

· No more than 15% of the total units in the project may be more than 30 days or more past due on the payment of their HOA dues.

· The individual units should be separately metered. If they are not, the project’s plans should provide for the ready adoption of unit metering

· No single entity (the same individual, investor group, partnership or corporation) owns more than 10% of the total units in the project.

· The units are owned fee simple, unless the Bank of America CID has approved the use of leasehold estates in the project.

· Evidence of the required insurance coverage must be obtained.

 The following are Ineligible Condominium Projects:
· Condominium Hotels – no exceptions allowed
· Timeshare or segmented ownership projects.
· Houseboat projects.
· Condominium projects that represent a legal, but nonconforming use of land if the zoning regulations prohibit rebuilding the improvements to current density in the event of their partial or full destruction.
· Projects where the HOA fees include meals or health care services.
· Condominium project buildings located in flood zone where the HOA does not carry flood insurance on the building.
· A condominium project (or HOA) that is currently involved in a lawsuit may not be eligible for financing depending upon the nature of the litigation. All condominium projects in litigation must be reviewed by Bank of America Common Interest Development (CID) for acceptability.
· Projects with non-incidental business operations owned or operated by the HOA such as, but not limited to, a restaurant, spa, health club, etc.

It is very frustrating as an agent that these units are well priced and for those that should normally qualify cannot get financing. We will just have to wait for the banks to release the funds and to loosen their restrictions on the projects they will finance.