Fannie Mae, the privately owned financial service company responsible for facilitating home mortgage loans nationally, has put some new regulations regarding condominium purchases. Christine Dewolfe, a loan officer at my office, listed the new guidlines in a recent newsletter (these guidelines generally apply to investment (non-owner occupied) purchases and purchases where the loan will exceed 90% financing):
New Attached Condominiums:
- Must be substantially complete (cert of occupancy issued).
- 51% must be under contract to owner occupied/second home purchasers
- Budgets must be reviewed for the following:
- Income meets proposed expenditures
- 10% of total budget dedicated to replacement reserves
- Adequate funding for insurance deductible
- No single entity (other than the developer during the initial sales phase) can own more than 10% of the total units
- Commercial space cannot exceed 20% of the total square footage of the project
Established Attached Condominiums (owner occupied/second home):
- Must be 100% complete
- Budgets must be reviewed for the following:
- Income meets proposed expenditures.
- 10% of total budget dedicated to replacement reserves.
- Adequate funding for insurance deductible.
- No single entity (other than the developer during the initial sales phase) can own more than 10% of the total units.
- Commercial space cannot exceed 20% of the total square footage of the project.
- Condo fees over 30 days delinquent cannot exceed 15% of the total units in the project.
- IF PURPOSE OF LOAN IS TO PURCHASE/REFINANCE AN INVESTMENT CONDOMINIUM, THEN 51% OF TOTAL UNITS IN THE PROJECT MUST BE SOLD TO OWNER OCCUPANTS/SECOND HOMES.
2-4 Unit Condominium Projects
- No single entity may own more than one unit within the project.
- All units and common elements must be 100% complete
- All but one unit in the project must have been conveyed to owner-occupant Principal residence or second home purchases
The important question is how this will affect condominium buyers and sellers. Obviously whenever any restrictions are placed on the home buying/selling process, it means that more research will need to be done in advance (more legwork) and the buyer pool, especially for new developments, will shrink and make for tougher sales and likely, as the laws of supply and demand would have it, lead to more competition among new developments and investment condominium sellers. It's certainly not the end of the world for condo investment opportunities, but it will encourage a more qualified buyer.
If you haven't been pre-approved recently (e.g. since November/December), it is probably a good idea to contact a mortgage broker for a new one. If you haven't settled on a mortgage broker, I've listed my top 3 below. Remember that everyone's financial situation (credit history, savings, employment) is different as is the property they will eventually purchase and their plans for the purchase (are you buying for investment? how long will you be at this location? will you occupy, then rent? are you looking to make improvements or buy (and keep) as is? and so on). The end result of this multiple of variables is a surfeit of mortgage packages that would dizzy even the most stalwart home buyer. A good idea is to talk to a mortgage person who can analyze your situation and provide you with the best options available. Here are three mortgage specialists I HIGHLY recommend:
- Joe Ray, NewFed Mortgage, (781) 241-1271, jray@newfed.com. Aside from the fact that he's my father, he's got over 30 years experience in the industry from all sides (agent, broker, MLS president, franchise owner, developer, manager, and mortgage broker) and will use that to give you well-healed advice. He is a straight shooter and, when it comes to getting his client's needs met, doesn't mess around.
- Eric Kamen, Guidance Mortgage, (617) 267-5787 ext 14, ekamen@guidancemortgage.com Eric is a longtime member of the JP community, a classical and jazz pianist, restaurateur, music teacher, and a very talented mortgage broker. He's extremely honest, well-informed and employs a creative approach that is incredibly rare in this profession.
- Christine Dewolfe, Coldwell Banker Mortgage, (781)-684-6300, Christine.DeWolfe@NEMoves.com I have only known Christine for a brief while, but after hearing her speak, seeing her credentials and reading her newsletters I am pretty convinced she's ahead of the curve compared to your average mortgage specialist. It was Christine who provided the information listed above.
So the announcement of these new rules is also significant because it won't only be the investment condominium market that Fannie Mae's regulatory statutes will influence. Things are tightening up across the board. Sure it will have an immediate effect on the supply/demand cycles, but at the end of the day the qualified buyers will be rewarded with a little more leverage on the buyers' side and a greater peace of mind with their loan package.
Here’s an interesting blog (a bit outdated) with a different perspective of Fannie Mae.
Any ideas, thoughts or questions for topics will be openly considered so please don't let this be a one-sided conversation.