Financing a Condo – Less is More

AZ Condo Regulations

Condo Mortgage Guidelines

Financing a condo is more complex than financing a single family home.  Why you ask?  Arizona Mortgage Lender’s must see that the condo project itself is eligible for financing.

 

Just how complex is condo financing?   The answer depends upon a myriad of factors.   However, let’s condense it down to the simplest version of an explanation.  First, financing a condo using a Conventional home loan requires 1 of 2 condo review processes.  Those processes are:

  • Limited Review
  • Full Review

The complexity of condo financing primarily roots itself in which type of Condo review is required.  As you may have guessed, Limited Reviews are simpler than Full Reviews.    So who determines which Review is required and why?

Conventional home loan guidelines dictate when Limited or Full Condo Reviews are to be used.

A CPM/Full Review requires the buyer’s mortgage lender to dig deeply and analyze virtually every nook, cranny and crevice of the HOA and condo project.   A CPM/Full Review exposes the condo project to many more potential hurdles that can complicate a condo purchase such as:  – The HOA budget must show that 10% of revenue collected from HOA dues must be allocated to “reserves” for the project to be eligible The good news is that there is a much better option that allows an Arizona condo lender to streamline the entire condo property approval process.  It is called a Limited Review.  A Limited Review allows a Phoenix area condo buyer’s lender to skip the review of the HOA’s legal documents which helps skip past potential transaction show stoppers.  For example, this would eliminate the need to review the percentage of HOA dues allocated to reserves noted above.

Condo Approval – Limited Review Eligibility

In order to be eligible for a Limited Review a buyer’s transaction must meet specific Loan to Value criteria (Loan to Value is also called “LTV”).  LTV simply refers to how much a condo buyer is borrowing compared to the value or purchase price of their new home (whichever is lower).  For example, if an AZ borrower is purchasing a condo that is priced at and appraises for $300,000 and they are borrowing $240,000 their “LTV” is 80% ($240,000 equals 80% of $300,000).  The LTV requirements for a Limited Review on a condo purchase are: OWNER OCCUPIED: 90%* SECOND HOME: 75% INVESTMENT PROPERTY: Not allowed *Must be approved per LP/Freddie Mac

Keys To 10% Down Primary Residence Purchase

In order for a buyer to be eligible for a 90% ltv mortgage (in other words a loan with only 10% down) their AZ condo lender must be able to approve their loan through Freddie Mac’s automated underwriting system called Loan Prospector or “LP” for short.   Why?  Simple – Fannie Mae requires 20% down when utilizing a Limited Review and Freddie Mac allows Limited Review with only 10% down.  Some lender’s only work with Fannie Mae so it is critical to make sure the condo buyer’s lender has the ability to sell loans to Freddie Mac in a 10% down condo purchase scenario.  If not, a 10% down condo buyer may find themselves jumping through the hoops associated with a CPM/Full Review to obtain condo approval. The other key to success with 10% down on a condo transaction that is a MUST relates to mortgage insurance.

By Jeremy House
Google

 

Comments

  1. Great post. I am going through some of these issues as well..

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