Other than location, location, location, the most important factor in buying or selling a condo these days might be financing, financing, financing. And financing ain’t as easy as it used to be. Before the economic implosion in 2008, almost any buyer could get a loan, and we all see how well that worked out. It was also considerably easier to get loans in condo projects than it is today: live/work restrictions weren’t a big deal, owner-occupancy requirements were a little less stringent, and recent conversions were not the red flag that they are today.
Which brings us to today, when red flags abound in condos.
Whether you’re an owner considering a sale of your condo or a potential buyer of a condo, there are certain super-duper important things to figure out prior to listing your condo or making an offer on one. Fannie Mae and Freddie Mac have tightened up their guidelines, and we’ll take a look at some potential stumbling blocks here.
If the answer to any of the following questions is yes, well, that could mean financing issues, which can spell trouble from both sides of the transaction. Bring this up with your agent and/or mortgage broker right away.
1. In a project of fewer than 20 units, does any one entity own more than one unit?
2. In a project of more than 20 units, does any one entity own more than 10% of the units?
3. Is the project a live/work building, with a deed restriction?
4. Is the project involved in any litigation?
5. Are there any planned special assessments? Important to note: if a special assessment has already been approved and assessed, it shouldn’t be a red flag for the lender. It’s the planned ones — i.e., the ones that don’t have a dollar figure attached yet — that are an obstacle.
6. Are more than 15% of the units more than 30 days delinquent in paying their HOA dues?
7. What is the ratio of owner-occupied units to tenant-occupied units? Most lenders want an owner-occupancy ratio of 70% or greater.
8. If there is any commercial space in the building: what percentage of the building’s square footage is commercial space? More than 20% can be a problem.
9. Is the building a recent conversion? Some lenders will provide financing only after the building has been condos for one year.