Buying a condo is 1/3 more complicated than buying a single-family home. That’s because when buying a home, the lender needs to vet you, to be sure your credit, income, etc. are viable, and also vet the home to make sure it’s at least as valuable as what you’re going to be paying for it (by way of an appraisal). But when you buy a condo, the lender ALSO has to vet the condo association to be sure it meets Fannie Mae standards around owner-occupancy, commercial space, finances, etc.
In markets like ours, where more and more condo units are being held as investments, many buildings now have low owner-occupancy and/or one entity holding multiple units, which historically has been a problem for financing. BUT…
Last week Fannie Mae announced several updates to their condo financing guidelines, which may just make it easier for you to buy that condo you have your eye on. Following is a summary of some of the changes, courtesy of one of my favorite lenders — Kevin Greeley at Leader Bank. If you’ve never tried to get a loan for a condo, this info may be a bit confusing, so feel free to reach out to Kevin with questions!
Highlights of the changes:
1. Single Entity Ownership – Single-entity ownership in projects with 21 or more units increased to 20%
- 2-4 units projects – no max or restrictions
- 4-21 unit projects – max single entity ownership remains at 2 units max (no change in this segment)
- 21 unit projects – single entity ownership is capped at 20% (increased from 10%)
- Also note that we can go up to 49% single entity ownership anytime we are REDUCING current single entity ownership via a purchase transaction.
2. Commercial Space – Increase commercial space to 35%
3. Investment Property Transactions – Allow investor transactions to be eligible for Limited Review for LTV, CLTV, and HCLTV to 75%
- There are no occupancy rep and warrant requirements with a Limited Review. Therefore, if you are eligible for a limited review on an investment, there is no longer a 51% O/O requirement…the project can technically be 100% investment owned and FNMA will still purchase the loan.
- On top of the occupancy relief, a limited review does not require a review of any budget/financials, etc. as well
4. Two- to Four-Unit Condo Projects – Waive project review requirements, with the exception of some basic requirements that apply
- No project review means no owner occupancy or single entity ownership requirements AT ALL. You can lend on a project where one entity owns 3 out of 4 units as investment and your borrower can purchase the 4th unit as investment as well with end result being a 4 unit project 100% investment owned and one entity owning 3 out of the 4 units. Crazy!
- No gut/non-gut conversion requirements will apply on 2-4 unit projects – no engineer/architect reports, etc.
- The “basic requirements” that all 2-4 units projects still need to adhere are straight forward and described below and cannot be an “ineligible project” – Houseboat, condotel, timeshare, etc.
Thanks so much, Kevin, for all the great info!
Senior Loan Officer
Leader Bank, N.A.
1201 Massachusetts Avenue
Arlington, MA 02476
Lender NMLS# 449250
NMLS MLO #38403