According to the Richmond Times Dispatch:
Condo buyers who sat out last year’s real estate market, waiting for prices to bottom out or their own financial footing to improve, find themselves in an enviable situation.
Prices have plunged, and mortgage interest rates, while slowly rising, remain near 5 percent, creating the best home affordability in decades for consumers who qualify for loans.
There’s just one problem. It’s not just the borrower who has to be up to snuff; it’s the building, too, and there are buildings that lenders won’t touch.
Among the deal killers: too many renters in a building, pending litigation, inadequate association reserves and delinquent assessments. Those are some of the criteria lenders must look at in order to sell the loan toFannie Mae or Freddie Mac, the troubled, government-sponsored entities, and the Federal Housing Administration, the first choice for many first-time homebuyers. Combined, the three agencies account for about 90 percent of the secondary loan market.
The average down payment on condos is 20 percent of the loan amount, compared with 10 percent or even 5 percent on single-family houses, White said.
What’s more, lenders are taking into consideration homeowner association fees and including those fees with mortgage payments to determine whether borrowers qualify. “It’s tougher to qualify for condominiums.”
Also, a majority of units in a condo complex needs to be owner occupied to get the best interest rates, Whitesaid. That requirement can be tough for newer condo buildings.
Agents and lenders say they are seeing more developers, condo associations and individual owners in economic distress, and, as a result, so are buildings.
“Anybody who can’t hang on anymore, that stuff is starting to come out,” said Eric Rojas, a PrudentialRubloff agent in Chicago. “We have people who want to buy units and sellers who want to sell units, and it’s not going to happen.”
Real estate agents have learned from experience what buildings to steer buyers clear of, and in other cases they are investigating a building’s health before they schedule showings. Meanwhile, some lenders maintain a frequently updated list of “blackballed” condo buildings, where they know a loan won’t get approved. They also are working with homeowner associations to improve their building’s lending potential by improving financial reserves and limiting the number of condo units that are turned into rentals.
The situation is slowing any recovery of the condo market, often the housing of choice for first-time buyers. Owners in troubled buildings aren’t able to refinance, and sellers who want or need to sell find thin ranks of buyers.
The requirements are thwarting the plans of some potential purchasers, who have abandoned their searches and remain renters.
Others continue to pore through real estate listings after finding that the condo they thought was perfect for them isn’t so perfect after all.
Some lenders will look past a problem in a building and still offer to take the loan and hold it in their own portfolio, but that acceptance comes at a price. The borrower’s credit has to be stellar, they have to make a sizable down payment, and the loan will carry a higher interest rate.