There is exciting news coming from Freddie Mac!
With new guidelines related to loans for condominiums, the mortgage company is making it easier than ever to purchase a comfortable, convenient condo.
These changes impact many different factors, but the bottom line is that more people will be able to purchase a condo with a loan supported by Freddie Mac, and more condo units will be available for these loans as well!
Understanding the Role of Freddie Mac
To understand how these changes impact you, it’s important to first understand the role of Freddie Mac on the mortgage and real estate markets. The Federal Home Loan Mortgage Corporation, better known as Freddie Mac, is a government supported corporation that works to make homeownership more affordable and accessible. They operate on the “secondary market” by purchasing home loans from lenders. They do not, however, purchase any and every loan; only those that meet their specific requirements. Essentially, they use their capital to grease the wheels of real estate lending, making home loans more available to would-be borrowers.
Lenders appreciate Freddie Mac because they reduce risk. Once a lender ensures that a loan meets Freddie Mac’s requirements, they basically sell the loan to the company. Freddie Mac then keeps the loan and assumes the risk and the profits. The lender takes a small payment and moves on, while Freddie Mac maintains the loan. Many of the loans purchased by Freddie Mac are combined into bundles, then sold as shares to pension funds, mutual funds, and other investments.
Exciting Changes for Freddie Mac Condo Loans
New Options for Two to Four-Unit Condo Projects with No Review
One of the most exciting changes from Freddie Mac involves exemptions from reviews for condos. A condo review is essentially a process where the lender looks over specific information related to the facility and the homeowners association. The goal is to determine if the building, the unit, and the overseeing body (the HOA) meet the eligibility requirements for certain loans. Generally these are broken down into limited or full reviews, but the new regulations could allow lenders to write loans without a time-consuming review process.
To write the loan, the seller must have policies in place that ensure the building and condo unit meets certain requirements. They will have to determine that the project complies with either Streamlined reviews, Established Condominium Projects, or New Condominium Projects, and they will have to meet specific timelines as well.
The lender will also have to retain all documents related to the project review, and they will have to provide project information if requested by Freddie Mac. While certain reviews can be exempted from the process, Freddie Mac keeps the right to conduct their own review if they see fit.
Streamline Review for Investment Properties
Another change has to do with Streamline reviews for investment properties. Streamline reviews can now be completed for an investment property that has a loan-to-value ratio of 75% or less. Loan-to-value is a statement of the loan amount compared to the value of the property being purchased. For example, if a condo is valued at $200,000, and the borrower has a loan for $150,000 and uses $50,000 of their own money, the LTV would be 75%.
If you are purchasing a condo with an LTV of 75% of lower, you and the lender can use the Streamline process to complete the loan. Using Streamline allows you to avoid many of the time-consuming and costly steps involved in a mortgage loan. Depending on the situation, Streamline can help you skip credit checks, appraisals (the previous established value would be used), and many other steps that slow the process.
Single-Entity Ownership Restrictions Changed
Lenders like to see a diverse variety of owners in a condo unit. Having too many of the units owned by one person or company creates statistical risk to lenders who write loans on that building, so they will avoid writing loans if single-entity ownership is too high.
How high is too high? That depends on the lender, the unit, and the borrower, but Freddie Mac is changing their standards a bit.
Previously, if a condo facility with over 21 units had 10% of the units owned by a single person or entity, they would not support loans on this property. Now that restriction is eased. Starting in November, the restriction will be lifted to 25%.
For buildings that have two to four units, no entity can own more than one unit. For 5 to 20 units, no entity can own more than two units.
Unit Conveyance Requirement
Unit conveyance requirements have also been changed by Freddie Mac. Previously, unit conveyance had to be at least 90% to unit purchasers. Now the restrictions are changed and the requirement is only 75% for projects with five or more units. This new requirement is applied to both established and new condominium projects.
Other Changes from Freddie Mac
There are many other changes coming from Freddie Mac. For example, Condo Project Advisor will now be available to sellers. This might not seem like a concern for borrowers, but using Freddie Mac’s Loan Advisor Suite portal, sellers can quickly request unit-level waivers for established condo projects. This means that sellers can submit, track, and monitor waiver requests with greater ease. They can also request multiple exceptions in each waiver request, and they can obtain representation and warranty relief for every waiver that is approved.
All of this simply means that the application process for a condo loan supported by Freddie Mac will be faster and more convenient!
High Quality Mortgage Loans for Any Need!
If you want more information on using a Freddie Mac loan to purchase a condo unit, contact the helpful team as San Diego Purchase Loans.
We’ll use our common-sense approach to help you find the right loan for your specific needs. From jumbo loans for commercial properties to small loans for a comfortable condo, we are here to help you get the right loan for the right purpose!
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