Current Problems With Condo Financing in Florida

Allow me to elaborate more about the current problems with condo financing in Florida. After the market crashed many years ago condos went down quicker than single family homes so Fannie Mae and all other lending types like FHA, VA etc. came in and put certain requirements as it pertains to condo financing.

These requirements have been lifted in all of the United States except for Florida. We are still is under these requirements. We are the only state that still has to deal with this because of the large amounts of condos.  There is an approved list of FHA or Fannie Mae approved condos but unfortunately there are very little on this list.

Here are the links for reference:

FHA
Fannie Mae

If the condo is not on this list ( which most in South Florida are not but some or many in Central or Northern Florida may be) Then the requirements below come in to play.

The current requirements are the following:

For a primary resident

If down payment is less than 25% or first mortgage is greater than 75% of the sales price a full condo questionnaire is required. This form is generally very difficult to get approved and many do not pass the requirements. If they do pass the requirements the budget is the next hurdle. The budget must show reserves of at least 10% of the total annual budget.

For a primary resident and the down payment is 25% or more no condo questionnaire is required and we do not need the budget. This generally represents most of the financing for condos in South Florida.

So in order to avoid requiring a buyer to put down 25% because often people don’t have that much to put down. We offer a combo of a first mortgage of 75% of the sales price and an equity line of 15%. This way we do not need any condo questionnaire or the budget at all. The borrower can avoid mortgage insurance and put down 10% and not worry about anything that it pertains to the condo. The main thing would be these two questions below.

One important requirement in either scenario to find out if the condo association has any open litigation and if so what does the litigation involve. If they do have open litigation it does not automatically kill the deal. It is taken on a case by case basis.  The other big requirement that would kill the deal under most scenarios is if there is one entity like one corporation that owns 10% or more of the total units in the building/project.  Again to reiterate generally with some exception these two questions are asked even if there is no questionnaire.

So to reiterate if you are looking at condos with less than 25% down and the client does not want to do a combo loan the things to check initially are the following:

  1. Does the association have reserves ( I believe the association told you the wrong info to begin with) always ask for a copy of the budget.
  2. Is there any one entity like one corporation that owns 10% or more of the total units in the building/project.
  3. Is there any litigation outstanding.
  4. Does the master insurance have co insurance, Do they have fidelity insurance.
  5. The percentage of homeowners delinquent in their associations dues.

We of course are happy to order a condo questionnaire but if you want to expedite things sometimes the sellers or listing agents can find these items out faster.

None of this comes in to play if the buyer is purchasing a townhouse that is a lot and block. Be careful because sometimes townhouses have condo associations. You must check the legal description on the property appraiser’s site to see if the word “condo” appears in it. Even if the property does not look like a condo but has that word in the legal description it will be considered a condo from a financing standpoint.

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