The real estate condominium conundrum

Navigating the Current Condo Conundrum in Real Estate

10 Feb, 2022

Condominiums are a great solution for many homebuyers, and for good reason! Because of their size and locations, condos often provide a lower cost of ownership and a desired change in lifestyle for many purchasers. However, while condos are becoming a more popular option, there are some issues making them harder to purchase than in the past.

The CARES Act and Its Impact on Condominium Purchases

The COVID-19 Pandemic is creating some long-term challenges for condo buyers. The CARES Act provided the opportunity for Borrowers to enter Mortgage Payment Forbearance. Because of this, millions of homeowners entered Mortgage Payment Forbearance and stopped making their mortgage payment. Many of those who participated in the CARES Act were also condo owners that stopped paying their Condo Fees or Home Ownership Association (HOA) dues. Unfortunately, this led to a significant spike in delinquent Condo/HOA Fees, and is now a long-term issue for those that wish to purchase a condominium. To further complicate things, Fannie Mae and Freddie Mac have a maximum delinquent rate of 15% for Condo/HOA Fees. No matter how well the borrower is qualified, if the Condo/HOA Fees delinquency rate exceeds 15%, the condo is not available for Fannie Mae or Freddie Mac Financing. There are Non-QM Options, but most have the 15% Condo/HOA Fees Delinquency Cap!

Condominium Project Qualifications Have Changed

As you may recall, on Thursday, June 24, 2021, the Champlain Towers South, a 12-story beach front condo in the Miami suburb of Surfside, FL, partially collapsed killing 98 people. This tragedy impacted the way Fannie Mae and Freddie Mac handle condo financing qualifications. Fannie and Freddie have now changed their requirements regarding deferred maintenance, reserves, inspections, and special assessments. This means the Borrower may be extremely qualified to buy the condo, however, the project may not qualify. Before you write a condo contract, take the extra step to ensure the project itself will qualify!

This first step is getting the new Condo Questionnaire completed prior to making an offer. A condo questionnaire is a document that lenders require in order to fund a property designated as a townhouse or condominium and is part of a homeowner’s association. This document also offers evidence that condominium projects comply with the lender’s underwriting prerequisites.

If you are a Listing Agent, get the Condo Questionnaire completed once you get the Listing to ensure that you become aware of any potential financing problems! If you are unsure how to do this, then you should check with your loan officer.

About the Author: Rock Vaughan of Fidelity Direct Mortgage is a seasoned Mortgage Loan Officer with over thirty years of experience in the industry and is native to the Washington, DC metro area.

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