Condo financing gets easier
August 19, 2010
Financing for condominium units is a prime example of how the pendulum has swung quite dramatically in the mortgage industry. During the early 2000s, financing a condominium essentially did not present any abnormal conditions or obstacles. Developers built condominium projects throughout the United Sates in abundance and sold them to anybody and everybody. Often the units were sold numerous times before construction was even complete. When the financial and real estate industries began to unravel in 2008, it quickly and painfully became evident that banks and lenders were now hesitant to lend on condominiums regardless of how well-qualified the borrower or the properties might be. Finally, we are now starting to see some slight but positive changes for financing condominiums.As most condominium owners, and those employed in the real estate or mortgage industries, know all too well, financing essentially dried up for condominiums for a couple of years after the real estate boom of the early 2000s. Strict and swift underwriting guidelines were implemented by Fannie Mae and Freddie Mac regarding their purchasing of loans in the secondary markets. Beginning in 2008 and throughout 2010, these government-sponsored entities essentially stated that they would not buy notes that financed condominiums if there were any nightly rentals within the particular project. This one new guideline presented problems for most projects in the Vail Valley and was the cause for many loans being flat-out denied. Insurance guidelines implemented by Fannie and Freddie for condominium associations also changed dramatically during the same time period, which left many associations under-covered. The net result here was also individual owners not being able to obtain financing. Fortunately for many Vail Valley homeowners, I do see the situation starting to become less strict in certain areas. Nightly rentals within the particular project or association are still a problem. However, the issue now is if there is a central management company or central reservations number for the particular association. If there is not a central reservations agent or number, some nightly rentals within the association are starting to become permissible. Planned unit developments or townhome projects are starting to see much more leniency overall than condominium projects as well. While some lending guidelines are starting to loosen a little bit in a good and healthy way, there are still many variables to be aware of. The percentage of owner-occupied or second home vs. rental units is still of major importance. Insurance requirements are still strict but it seems as if most associations and their insurance agents are aware of the parameters. Further complicating the matter is that individual banks and lenders have their own guidelines past what Fannie Mae and Freddie Mac impose. It’s still a difficult proposition to finance a condominium but the scenario is starting to improve. As with any mortgage financing, it takes a seasoned and professional mortgage loan officer to successfully navigate the process. William A. DesPortes is a managing member of DesPortes, Selig & Associates, Professional Mortgage Services. He can be reached at 970-926-9393 or firstname.lastname@example.org.