With our minimum-down-payment jumbo loans, we open the doors to purchases that would otherwise be closed.
And they can be closed for many reasons.
The most obvious is price. With conventional loans, you are limited to a certain amount, which can severely restrict your buying options. The minimum limit across the country is $484,350, which allows for an excellent property but still restricts a lot of homes. In San Diego, the limit is $690,000, while certain areas can get up to $726,525 in financing.
This is certainly enough for many borrowers, but what if you want to make a purchase of a condo worth $1 million or more? In this case, you’ll have to seek other financing, such as our minimum-down-payment jumbo loans for condos.
There are other restrictions beyond condo pricing. Condo warrantability is essentially the classification for whether or not the property can be purchased by Fannie Mae. Having a condo that is “warrantable” is required if you are going to use a Fannie Mae loan, but there are many stipulations for this classification.
In some cases, it may be best to use an alternate route. The following items will impact the condo warrantability of a property you wish to purchase. Fortunately, they are allowed through our minimum-down-payment jumbo loans for condos. Even if you don’t need a jumbo amount, it may be worth considering this option.
Understanding Condo Warrantability for Minimum-Down-Payment Jumbo Loans
Requirements for Characteristics of the Project
Commercial and Non-Residential Restrictions
An initial requirement that you will find involves restrictions on commercial and non-residential condos. With many other programs, the subject property must be 100% residential, and project and building must be less than 50%. Also, if there is any commercial use, it must be typical for the general market, and it can’t have a negative impact on the marketability of the property. For example, the commercial activity can’t be so loud it disrupts people living in the condo.
There will also be restrictions on the zoning. Legal conforming and legal non-conforming are allowed, but a limited and full review will be required to qualify the property for a loan.
Square Footage Requirements
Fannie Mae loans will also have minimum requirements on the size of the property. This requirement states that a condo unit must be at least 475 square feet. So if you are looking to purchase a smaller condo unit, you won’t be able to qualify with this program.
With typical loans, properties with less than 50% single-ownership is allowed, but when you go above 50% you can run into issues with financing. This is because, statistically speaking, high single-entity-ownership percentages will increase the chances of loan default.
If the property has single-entity ownership of 50.1 to 75%, the loan may be allowed but there will be significant restrictions. This is only allowed for established condos and existing project types, which are defined by Fannie Mae. The loan will also be disallowed if the project has insufficient reserves.
Condo units that will soon be involved in litigation proceedings create significant risk for lenders. This is because the litigation will impact the cost of living, as condo owners have to contribute to legal fees. Essentially, litigation means condo owners pay more for living in the property, increasing their chances of loan default. If the homeowner’s association (HOA) is named as the plaintiff, in the pending litigation (meaning they are suing someone, not being sued) the loan can proceed. This can include situations when the HOA is named as the plaintiff in a foreclosure auction.
Other pending litigation is generally assessed on a case-by-case basis. There will be significant documentation requirements, and everything is subject to additional documentation, depending on the assessment.
There are, however, certain forms of litigation that will completely disqualify a property. Any litigation that involves structural issues, or items that impact the marketability or safety of the property, will likely make the condo ineligible for a loan.
Requirements the Condo Facilities’s Financial Status
HOA Budget and Reserves
The budget and financial reserves of the homeowner’s association are also a concern for lenders. With Fannie Mae programs, you must show greater than 5% allocation of replacement reserves. If you have between 3 to 5% allocation of replacement reserves, disclosure of the annual budget will be required. If there is less than 3% allocation, the annual budget will be required, and a reserve study will need to be completed by a trained professional. All of this can add to the time, as well as the hassle, of getting approved for your condo loan.
HOA Reserve Balance
The lender will also want information relating to the reserve balance of the property. If 25% of the HOA dues are less than 60 days delinquent, the loan will be allowed, but if more than 25% are over 60 days delinquent, you will run into hurdles. If more than 25% are over the 60-day mark, the property will be deemed “excessively insufficient.” This means that loans on these properties will only be allowed on a case-by-case basis, and there must be a reserve study completed within the last five years by a trained professional, which can include an engineer, architect, CPA, or property manager who has at least three years of experience.
Condo Conversions and New Condos
There will also be a variety of restrictions on condo conversions and new condominiums. In certain situations, you will have to provide a full engineer’s report, which can once again create more time during your application.
Get More Options with Our Flexible Minimum-Down-Payment Loans
As you can see, there are many restrictions for purchasing a condo with a loan supported by Fannie Mae. In various situations, it may be ideal to use our minimum-down-payment loans, which have lighter restrictions on the finances and status of a condo. If you find that the condo has issues with single-entity ownership or commercial use, limiting loans through other means, please contact our staff to learn about possible options.
We take a common-sense approach to lending, so contact us today to learn more!
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