Conventional Loan Condo Unavailable List
Zach:
Hey y’all. It’s Zach McDonald, your real estate agent with Real Property Associates, and I got with me, Dan Keller, branch Manager, New American Funding. We’re going to share some information with you that’s super valuable, whether you are looking to buy a condo, whether you are looking to sell a condo, and quite frankly, if you own a condo, and recently Fannie Mae introduced some new loan guidelines, and Dan’s going to tell us a little bit about those guidelines specifically and how those impact you if you are looking to buy or sell a condo. Dan, can you tell us a little bit about these guidelines?
Dan:
On September 18th, Fannie Mae rewrote the underwriting guidelines as we all knew it, as lenders and really as you guys as real estate agents. And you got to see, when you listed a condo, you were at the mercy of the buyer’s lender in regards to how flexible they were or were not going to be on underwriting guidelines or condo guidelines. Now, whether the borrower put down less than 10%, they had to have a full condo review. If they put down 10% or more, they were able to get by with a limited review. I don’t really want to go into detail on that, but one of the most important things that you need to know as a real estate agent, as a home owner, condo owner, or a buyer, doesn’t really matter how much money you put down right now, you’re still subject to these new overlays, these new revisions or guidelines.
Now, I think it’s also to provide some context. It’s important to understand why did Fannie Mae do this? Why are they making it more difficult to buy condos, which are in most markets the most affordable? I want to say it was the year 2021, there was a major condo project condominium high-rise, I believe in Florida that collapsed and they believe, and I think a lot of people, attorneys obviously, and Fannie Mae and Freddie Mac do believe that it could have been prevented had there been a little bit more due diligence with the HOA, more questions, more awareness. And so that’s what you’re going to see today. Some of these two or three new questions that supersede the previous guidelines.
Zach:
So what’s changed? I mean, what’s here that we’re now interacting with that we didn’t interact with in the past?
Dan:
Yeah, I think really more due diligence in regards to deferred maintenance. So you’re going to have a questionnaire that your HOA, okay, so let’s just role play here for a minute. Obviously, you’re Zach McDonald, you’re a real estate agent. Let’s say that you had someone reach out to you and say, Hey, I am interested in you helping me sell my condo. What’s important about that and what you’ll need to do moving forward is you’ll need to make sure that in addition to, because you don’t know what kind of buyer you’re going to going to get, that’s a surprise. What I would do, if you’re a real estate agent listening to this or a condo owner listening to this, you’re going to need to know three main things that, like I said, will supersede the typical condo limited review process or full review process. Number one, any structural or mechanical reports that were generated over the last three years will need to be reviewed. So on the condo questionnaire, it will ask, and that is regardless of the condo status right now with Fannie Mae, it could be approved. We’re going to need to find that information. Okay. Number two, and this is big, and this is I think one of the things that can be traced all the way back to that condo project in Florida, unfunded projects. Okay, so any unfunded projects that end up being in excess of $10,000 per unit, these are like special assessments on the building. People owe money. Unfunded projects – so let’s say there’s 10 units in the whole project. If the unfunded projects for this particular example exceed a hundred thousand dollars, $10,000 per unit, it’s ineligible for delivery to Fannie Mae, meaning it’s now, an unwinnable condo, which means that traditional financing is out the window.
Zach:
That’s pretty big news.
Dan:
Pretty big news, because that’ll impact your ability as a real estate agent to sell, not only to sell the unit, you’ll still sell the unit. There will be cash buyers and there will be buyers that will get portfolio financing. We offer it, but it’s called, or non-warrantable condo financing, which requires a lot more money down, a higher interest rate, it’s a higher risk, and that’s not even a guarantee. So that’s
Zach:
Really big. That’s a big problem.
Dan:
Now, here’s the bigger one. Any condo project that is on the unavailable list on Fannie Mae’s website is ineligible for delivery.
Zach:
Tell us about the unavailable list.
Dan:
You’re asking. Well, how many of them are there? Well, remember, these guidelines just went into motion September 18th, so a month ago. There’s already north of 30 of them here in Washington state that are already on the unavailable list, and that will grow.
Zach:
That’s not good.
Dan:
That will grow. Yeah. So the first thing that I would do, you’re going to call me up. I’m your buddy, I’m your mortgage lender. You get a listing in ABC condo project in Bellevue. You’re going to call me up and you’re going to say, Hey, Dan, I’m meeting a seller tomorrow night. Here’s the condo project name. Here’s the address. If you can get me the HOA contact information upfront, we can go and sync with them, have them fill out the questionnaire, get the budget, get some of the information that we need from them. I think the big thing is the homeowners, or excuse me, the master insurance policy. That’s big because what Fannie Mae also is finding is that with inflation, with the rising costs of everything, HOAs have cut corners.
Zach:
How do you get yourself on the unavailable list?
Dan:
That’s a good question. I think one, I think insurance, two, I think just going through the process and having banks and having, whether there’s either could be litigation, there could be repairs, there could be just a lot of things that lead to it, but I think where you’re going to find that out is someone goes to sell, someone goes to buy, and then they find out through the process the lending process or the review process that it just doesn’t meet the Fannie Mae requirements.
Zach:
So what you’re saying is there are a lot of condos right now that aren’t on that list, that will be on that list going forward.
Dan:
Yeah.
Zach:
So for a buyer, what can they do up front to know if they might be getting themselves into a situation like this and potentially avoid this heartbreak altogether? Nobody wants to go through the process of buying a place and then all of a sudden have their financing declined.
Dan:
I always tell my clients buyers, so I do the financing, obviously, when I educate them on the pros and the cons of buying a condo. I use this analogy that when you buy a condo, you’re going into business with the HOA, you’re going into partnership with an HOA, because you own, yes, you own the unit on their land. The HOA owns the land and the structure, right? The development, right? You own the unit within. You’re essentially partners with the HOA as a seller. Understanding your relationship with your HOA is so important, and then attend the meetings, attend the meetings, understand, maybe get a copy of the most recent meetings, notes, the budget conversations, understanding the budgets. Are you guys, Hey, how’s the budget look, are there special assessments coming? Pending special assessments, are there any pending litigations? Stuff like that is really important. Are my HOA dues looking like they’re going to be going up in the future? Stuff like that. So I think every condo owner, these guidelines should be an alert to you. You could have bought a nice condo two or three years ago, thought it was a good deal, thought it was a nice condo, and depending on whether or not the condo project or the HOA has done a great job keeping up on things, it might actually be a flop. So I wouldn’t say I’d be worried, but I’d want to know.
Zach:
Yeah, I mean, if you can’t sell your condo with conventional financing, it’s going to severely affect the value, right? There’s going to be a lot less people interested in buying it, which makes a very small niche of people that would be willing to buy it. So it’s interesting. Well, Dan, thanks so much for jumping on here with us today, and hopefully this was valuable for you kind of going over some of these changes to the condo guidelines. If you have questions or want to connect with me or Dan, feel free to reach out in the comments or directly.
