Let's say you are a student, parent of a student, young professional or retiree who has been shopping at the Tallahassee condos sale and found a great deal – a condominium with no yard to maintain, nice amenities, on a bus route and close to school/work/shopping/senior center.
The seller accepts your offer, and you go off to secure financing. You have already been pre-qualified for more than the amount of the loan you will need, so you're anticipating a short, pleasant meeting.
When your loan originator realizes that your wonderful new home is in a condominium complex, your short, pleasant meeting becomes shorter and less pleasant. You discover that very few condominium complexes in Florida meet FHA standards, and your new home isn’t in one of them.
Situations that could make a condominium complex unstable – and cause problems for prospective condominium mortgages include:
- A large percentage of residents are past-due on their association fees
- The complex has more rental units than owner occupied units
- The complex has too much space designated for commercial purposes
- One owner owns more than 10 percent of the units in the building
- The condo association has insufficient cash reserves
- The condo association has insufficient insurance coverage
- The condo association has not budgeted for its insurance deductible
- The condo association has deferred essential maintenance
Without FHA approval, a mortgage cannot be sold on the secondary market (Fannie Mae, Freddie Mac), and your bank will not lend you money, no matter how good your credit history, or how long your banking history. Rules are rules.
- You pay cash.
- You get the current owner to finance you.
- You find a lender willing to make an In-House loan.
HOW IT WORKS
An In-House loan, also called a Portfolio Loan, is a mortgage loan in which lenders will lend their own money and accept that they will not be able to sell the loan or transfer servicing to another bank or lender. When lenders hold and service their own loans, they have the ability to work “outside the box” and approve exceptions that typical lenders cannot.
Community-based banks, credit unions and mortgage brokers are more likely to consider In-House loans than the major national banks. Although open-minded, lenders of In-House loans will be somewhat conservative with their institution’s money as they will be solely responsible for the loan.
NOTE: The interest rate on an In-House mortgage loan will be at least a half of a percentage point greater than that of regular mortgage loans, and at least 20% of the purchase price will be required for a down payment.
Also, both you AND the condominium complex will have to qualify for the loan.
You will likely need to:
- Fill out the usual loan application form
- Supply the usual documents (W2s, tax forms, bank statements …)
- Become a member of the bank or credit union and deposit the money you intend to use as a down payment.
The CONDOMINIUM Home Owner's Association will need to supply some or all of the following:
- Condominium Covenants and Restrictions
- Condominium Budget
- A Condominium Questionnaire designed by the lending institution to reveal the financial stability of the Condominium association.
The local, In-House loan specialist will be able to consider the merits and reputation of the condominium association or property management team when evaluating the application. Strengths in some areas will be able to overcome weaknesses in others. The overall positive impression of financial stability in the combination of all components will enable you to move into your desired home.
It’s more important than ever for borrowers to work with experienced real estate and mortgage professionals to find a great home in a financially stable neighborhood. Their knowledge of current real estate guidelines and local conditions can help you avoid an ugly surprise when it’s time to get financing. A wise real estate professional will never let you experience the heartbreak of falling in love with a home you can’t have.Andrea Chapman(850) 386-2001
Joe Manausa, MBA is a 26 year veteran of real estate brokerage in the State of Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.