condo pp

What We Will CoverBasic Terminology

Conventional Project Review Options

◦ Streamline/Limited Review◦ CPM Expedited Review◦ Full Review◦ FNMA’s Project Eligibility Review Service (PERS)

Condo Questionnaire Budget Requirements Insurance Requirements

FHA VA USDA

Non-Warrantable Condos◦ Jumbos◦ Condotels◦ Foreign National Condo Programs◦ Asset Based Condo Programs

What We Will Cover

A real estate project in which each unit owner has:

Ownership of the “Air Space” and interior walls within an individual unit,

An undivided interest in the ownership of common elements of the project.

Condominiums have conditions, covenants and restrictions (CCR’s) and often additional rules (By Laws) that govern how the individuals are to share the common areas.

(And sometimes) the exclusive use of certain limited common areas, including the parking area, community room, pool, tennis court, club house, and other common areas.

What is a Condominium Project?

Condominium

Unit owner owns the “air space” inside the unit.

Unit owner owns an “undivided interest” in the common areas.

Planned Unit Development (PUD)

Unit owner owns the interior and exterior of the unit.

Unit owner owns the ground beneath the unit – and possible land in front of or behind the unit.

Common areas are owned by an association of unit owners. PUD’s have conditions, covenants and restrictions (CCR’s) and often additional rules that govern how the individuals are to share the common areas.

Is it a Condo or PUD?

Condominium

Unit owner owns the “air space” inside the unit.

Unit owner owns an “undivided interest” in the common areas.

Cooperative

Owner own shares of stock in a corporation which owns the entire building, including any common areas.

All prospective purchasers must be approved by the Board of Directors. BOD’s are permitted to request extensive information regarding finances, employment and personal background as part of their approval process. This process can be very time consuming.

No real estate is owned by an individual. Instead, individuals purchase the shares of corporate stock allocated to a specific unit.

Is it a Condo or Co-op?

Attached Projects - consists of dwellings that have one or more common walls adjoining another dwelling. This can be as simple as a common wall between garages. Types of projects include: garden style, row/townhouse, high-rise, etc.

Detached Projects - consists of dwellings that are freestanding on its own block of land. Looks like a single family home.

Attached vs. Detached Condos

Fannie Mae and Freddie Mac have different review procedures for “Established” and “New” Condo projects. ESTABLISHED PROJECTS

90% or more of the units in the project have been conveyed to the unit purchasers – AND –

Project is 100% complete. It is not subject to additional phasing and/or annexation – AND-

HOA control has been turned over to unit owners

“Established” vs. “New” Condo Projects

NEW PROJECTS

Fewer than 90% of the total units have been conveyed to the purchaser – OR-

Project is not fully completed and is subject to additional phasing and/or annexation – OR-

HOA control has not been turned over to unit owners

“Established” vs. “New” Projects Continued

The year the project was built is not considered when determining if the project is “Established” or “New”.

“Established” vs. “New” Projects

New Project Pre-Sale Requirements - At least 50% of the total units in the project (or at least 50% of the subject legal phase and prior legal phases) must have been conveyed or must be under contract to purchasers who will occupy the unit as primary or secondary residences.

Subject legal phase and prior legal phases must be substantially complete including common elements and units (subject to the selection of buyers preference items).

Pre-Sale Requirements

The project’s budget is adequate and consistent with the nature of the project and appropriate assessments are established to manage the project:

◦ Appropriate allocations for line items pertinent to the type and status of the project.

◦ At least 10% of the budget provided funding for replacement reserves for capital expenditures and deferred maintenance (lower amount is acceptable if supported by reserve study – FNMA only)

◦ Adequate funding for insurance deductible amounts◦ “Non-incidental” business income is acceptable up to

10% of the annual budget (up to 15% on case by case exception)

Project Budget

No more than 15% of the total number of units in a project are 60 days or more delinquent on the payment of their homeowners association assessments.

HOA Dues Delinquency

Hazard Insurance – Requirements

◦ Insurance is required to cover 100% of the insurable replacement cost the project improvements, including the individual units in the project. Co-Insurance is acceptable with agreed amount endorsement or recent cost estimator/valuation report.

◦ Building Law and Ordinance endorsement is required to ensure the building can be rebuilt according to local building laws and ordinances (if available)

◦ Mechanical Breakdown Endorsement is required for projects that have central heating or cooling.

◦ The deductible must not exceed 5% of the policy’s face amount.

◦ “All-In” Coverage – “Betterments and Improvements” otherwise individual HO6 Policy will be required.

Master Insurance

Liability - Requirements

The HOA is required to maintain a commercial general liability insurance policy for the entire project, including all common areas and element, public ways, and any other areas that are under its supervision.

The amount of coverage must be $1 million for bodily injury and property damage for any single occurrence.

Master Insurance

Liability – Requirements

“Separation of Insured” or “Severability of Interest”

FNMA requires each insured party on the master liability policy be treated as if it were covered by its own liability policy.

An insured party cannot be denied claims brought against another insured party.

Fidelity Insurance – Requirements

◦ Fidelity insurance is required for condo projects with 21 or more units.

◦ The amount of coverage must cover the maximum funds that are in the custody of the HOA or its management agent at any time while the policy is in force.

◦ If the HOA and management agent adheres to financial controls (separate bank accounts for operating and reserve account, two signatures required for writing checks from reserve account, etc.), the fidelity insurance must equal at least the sum of three

◦ months of assessments on all units in the project.

Master Insurance

Flood Insurance – Requirements

If a first mortgage is secured by a unit in a condo project and any part of the improvements are located in a Special Flood Hazard Area (SFHA), a master flood insurance policy is required and the premiums are required to be paid as a common expense.

Master Insurance

Flood Insurance, cont.

Coverage Requirements for Projects

◦ The amount of coverage needs to be at least equal to the lesser of 100% of the insurable value of each insured building (including all common elements and property) or the maximum coverage available under the applicable National Flood Insurance Program (NFIP - $250K)

Master Insurance

Warrantable:

Conventional (Eligible for Fannie Mae and Freddie Mac) FHA VA USDA

Non-Warrantable:

Conventional (ineligible for Fannie Mae and Freddie Mac) Jumbo Condo-tels Foreign National loans Asset Based Loans

Condominium Loan Types

Streamline Review – Freddie Mac – Lender issues approval. No Review Fee is required.

Limited Review – Fannie Mae – Lender issues approval. No Review Fee is required.

Full Review and Condo Project Manager (CPM) Expedited Review – Fannie Mae, reciprocal with Freddie Mac – Lender issues approval. No Review Fee is required.

Project Eligibility Review Service (PERS) -Fannie Mae, reciprocal with Freddie Mac – Approval issued by Fannie Mae. Agency Review Fee is required.

Project Review Methods for Conventional Loans

Streamline Review Attached Condos (Freddie Mac) : 10% down for owner occupied loans and 25% down for vacation loans. Project must be “established”.

Limited Review Attached Condos (Fannie Mae): 10% down for owner occupied loans and 25% down for vacation loans. Project must be “established”.

(Above rules apply to all states except FL)

Streamline vs Limited Review

There is one key exception:

All “Detached” condos are eligible for Streamline/Limited Review regardless of occupancy (owner occupied, vacation, investment) or loan to value.

Streamline vs Limited Review

Items required for project approval:

1. Condo Questionnaire

2. Master Insurance – Hazard, Liability (S) and Fidelity(S) and flood, if applicable.

Review of Condo Legal Documents, Budget and HOA delinquency is not required.

Streamline vs. Limited Review

Full Review – Manual review process - New and Established Projects (97% owner occupied/first time buyer) 95% owner occupied; 90% vacation; 85% investor)

Expedited Review – FNMA’s web-based condo review application: Condo Project Manager – New and Established Projects (95% owner occupied; 90% vacation; 85% investor)

Established Projects - Docs expire after 6 months. Lender has discretion of period updates to ensure compliance.

New Projects - Docs expire after 6 months (Requires review of legal documents and presales)

Full Review and Expedited Review CPM)

Items required for project approval:

1. Condo Questionnaire 2. Master Insurance3. Budget

New projects also require:

4. Condominium Legal Documentation Review.5. Presale Data – 50% of units in project or

subject phase.

Full Review and Expedited Review CPM

Project Eligibility Review Service – is Fannie Mae’s fee-based review option which is available for any for Condo or Coop project:

https://www.fanniemae.com/singlefamily/project-eligibility

This review method is require for the following “new” projects:

Newly converted, non-gut rehabilitation condo projects; and

All new and newly converted attached condo projects located in Florida.

Project Eligibility Review Service (PERS)



Any questions on Fannie Mae or Freddie Mac Condo

loans?

FHA Condo Loans

FHAThe Federal Housing Administration was

created by the National Housing Act of 1934 during the Great Depression. It’s goal was

to increase home construction, reduce unemployment, and operate various loan

insurance programs.

FHA does not make loans, it only insures loans made by approved lenders

FHA Loans are Federally Insured

Default claims are paid from a fund called the Mutual Mortgage Insurance (MMI) Fund

The MMI is funded by two types of premiums paid by the borrowers:

1. Up Front Mortgage Insurance Premium (UFMIP) equal to 1.75% of the base loan amount. This is normally financed into the total loan amount by the lender and paid to FHA on the borrower’s behalf.

FHA Insurance2. The second insurance is the Annual Mortgage Insurance Premium (MIP), which is paid on a monthly basis. This insurance premium varies based on the amortization term and loan-to-value ratios.

Example: A. 30 year loan term with 96.5% LTV, the MIP is

currently 0.85% of the loan amount.

B. 15 year loan term with 96.5% LTV, the MIP is currently 0.70% of the loan amount.

Owner Occupied loans require minimum of 3.5% down payment.

Down payment must be verified. All funds may be gifted.

Seller concessions permitted up to 6% of the sales price.

loan limits vary by county $271,050 - $625,500; Alaska, Hawaii, Guam and US Virgin Islands $938,250

203K Rehab (detached condos and 2-4 unit attached condos)

Reverse Mortgage (HECM) LTV varies by age, program, mandatory obligation, Loan limit is $625,500 nationwide. The actual loan amount is a percentage of the loan limit.

FHA

AssumableMost FHA loans are assumable, meaning the seller can transfer their loan to the new owner when they sell their house. (HECM Loans are not assumable)

The new owner can take over the FHA loan (and rate) without the additional cost of obtaining a new loan.

To assume the loan, the buyer has to meet the credit standards for the loan.

This feature can make it easier to sell a home with FHA financing.

FHA Condo Requirements

Project Approval – Required for all “attached condo projects” only. FHA Condo Approval expires every two years. FHA approval is not required for detached condos, streamline refinances or HUD REOs.

Lenders are required to certify, at time of loan approval, that that there is no pending litigation or environmental hazards and the following criteria is met: Owner Occupancy 50% or more; FHA Concentration 50% or less

https://entp.hud.gov/idapp/html/condlook.cfm

https://entp.hud.gov/idapp/html/condlook.cfm

Any questions on FHA Condo Loans?

VA Condo Loans

Veteran Administration (VA)

The VA Home Loan Program (G.I. Bill) was created as part of the Servicemen’s Readjustment Act in 1944 By President Roosevelt to help veterans returning from WWII.

The Readjustment Benefits Act of 1966 extended the G.I. Bill benefits to all veterans of the armed forces, including those who served during peacetime.


VA loans are mortgage loans which are guaranteed by the US Department of Veterans Affairs.

VA does not make loans, it only insures loans made by approved lenders.


VA Home loans are available for eligible active duty veterans and surviving spouses.

VA Home loans are available for Reserve and National Guard Personnel with at least six years of honorable service.


No Down Payment is required

No Monthly PMI

VA Funding Fee: 0 to 3.3% (Veterans with service connected disability of 10% or more are exempt from paying Funding Fee)

Seller is permitted to pay all of the veterans closing costs up to 6% of the sale price of the home.

AssumableAll VA loans are assumable, meaning the seller can transfer their loan to the new owner when they sell their house.

The new owner can take over the VA loan (and rate) without the additional cost of obtaining a new loan.


This feature can make it easier to sell a home with VA financing.


All Condo Types Require VA Project Approval. Condo Projects do not expire.

https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch



Any questions on VA Condo Loans?

USDA Condo Loans

Guaranteed Rural Housing Loans(Section 502 Program)

The Guaranteed Rural Housing Loan program is administered through USDA Rural Development. Loans are insured by the US Department of Agriculture.

Guaranteed Rural Housing Loans

Eligibility

Borrowers must be credit worthy and not have sufficient assets to obtain a conventional uninsured mortgage loan.

Guaranteed Rural Housing Loans

Eligibility

Borrowers household income cannot exceed the maximum allowable income limits for the area as determined by Rural Development

Guaranteed Rural Housing LoansEligibility

Properties must be in rural areas with populations of 10,000 or less and under certain conditions – Towns and Cities with between 10,000 and 25,000 residents.

Properties must meet FHA appraisal guidelines.

Guaranteed Rural Housing LoansFeatures

Owner Occupied 100% Financing (No maximum loan limit/Income limits apply)

Mortgage Insurance: 2.00% upfront/0.5% annual

Project must be in a USDA Eligible Area

Project Approval – Reciprocity with FNMA, FHA, VA

AssumableAll USDA loans are assumable, meaning the seller can transfer their loan to the new owner when they sell their house.

The new owner can take over the USDA loan (and rate) without the additional cost of obtaining a new loan.


This feature can make it easier to sell a home with USDA financing.

Any questions on USDA Condo Loans?

Non-Warrantable:

Any loan that is ineligible for Fannie mae or Freddie mac financing

Jumbo loans (over $417,000)

Condotels

Foreign National Loans

Asset Based Loans - Asset Depletion and Asset Pledging (not available in DC, VA or WV)

Condominium Loan Types

Non-Warrantable Condos

Conventional loan that does not meet agency guidelines

vs

Lender Overlays

Project Eligibility Waiver (PEW)

FNMA – Project Eligibility Waiver – Loan specific, $200 Fee charged by FNMA regardless of the outcome. PEW’s are commonly used for:

1. Commercial space over 25%2. Single Entity ownership greater than 10%3. HOA delinquency greater than 15%4. Budget reserve line item of less than 10%5. Pending Litigation

Condotels

1.Projects with registration services that offer rentals of units on a daily basis

2.Projects that restrict the owner’s ability to occupy the unit

3.Projects with mandatory rental pooling agreements that require the unit owner to either rent their units or to give a management firm control over the occupancy over the units

4.Red Flags: Central telephone system, central key system, room service, daily cleaning service, etc.

CondotelRequirements

Minimum Down Payment of 25% up to $3M; 50% DP up to $10M

500 Square Feet Minimum

Fully Functional Kitchen and Separate Bedroom.

Foreign National LoansNo SSN, ITIN, green card or visa required. Valid Passport

is required.

NO FICO Score is require. However, international credit report or alternative credit (4 trade lines) is required

Down payment of 50% (can be as low as 35% on a case-by basis)

Evidence of Income from country of origin

Investments loans on a case-by –case basis.

All documents need to be translated into English

Asset Depletion

This program allows borrowers to use liquid assets to qualify for a loan. Assets are annuitized at a rate of 5% to age 85 or 30 years, whichever is less.

Eligible assets include:

1. Cash equivalents – CD’s, Money Market, Savings and checking accounts.

2.Trust funds and investment portfolios – stocks, bonds, mutual funds, etc.

3.Retirement accounts if the borrower is of retirement age.

Pledged AssetsThis program allows the borrowers to finance up to 90% of the property value by pledging assets.

Borrower is able to defer capital gains tax by retaining the investment strategy while receiving benefit from interest, dividends, and investment growth.

1.Any person may pledge assets on behalf of borrower

2. Pledged accounts may be considered for release after 36 months.

3. Not available in DC, VA or WV

Pledged Assets

Amount of Assets to Pledge:

Non-Volatile Assets (1:1) - savings, CD’s, money market accounts

Volatile Assets (2:1) – Stocks, bonds, mutual funds, etc.

Non-Warrantable Condos

Vesting Title in Entities

LLC’sTrusts

PartnershipsSub S Corps

Any questions on Non-Warrantable Condos?