As Realtors and lenders, there are a number of factors to be aware of when there is a transaction involving a Condo. There are a number of additional steps everyone needs to take in order to make the transaction go smoothly. It is also important to make sure that you know whether the property is a PUD (Planned Unit Development) or a Condo, as PUDs typically don’t require much, if any, additional documentation. For a Condo the buyer will not own the land that the property sits on — a main difference between a Condo and a PUD.
The Condo Questionnaire is an essential document that is needed for the transaction. This document contains information that is needed to hopefully ensure that the development is in compliance with the lender’s underwriting guidelines. The Condo Questionnaire is filled out by the property management group and contains information such as the number of units, the delinquency rate, pending litigation, owner occupied units and much more. These are also needed by the appraiser to complete his or her report as this information can certainly affect marketability and value.
The lender will also need the master insurance policy that covers the association. This policy details the amount of coverage the association has, and the lender needs to verify that it meets or exceeds the minimum coverage requirement per guidelines. Buyers still need to get homeowners insurance which is separate from the master insurance policy that the association provides.
Another requirement is that the seller and the association provide a Resale Certificate to the prospective buyers. The Resale Certificate provides a lot of the same information that a Condo Questionnaire does, but it is specific to the unit that is being sold. Essentially it provides the information for that particular unit in regard to any past due payments, pending violations or any other fees or penalties that would be due at closing.
You may be asking, “What do we do if the information does not satisfy the lender’s guidelines?” That is a great question. Typically in the event that the Condo is deemed “Non-Warrantable”, meaning Fannie Mae or Freddie Mac will not accept these loans, there are limited options. One of the options would be to pay cash for the property which isn’t horribly common. The only other option would typically be a Portfolio Loan or any other type of “Private Mortgage” that a buyer is able to obtain. Our mortgage company is part of York Traditions Bank, and we have the ability to offer portfolio products that are loans our bank will service. There are several banks that have these products, but typically the terms are not as competitive as a loan that will be sold on the secondary market in accordance with Fannie Mae and Freddie Mac guidelines.
It is also important to note the additional fees for buyers purchasing a condo. Most Realtors will put this information on the listing, but it is always good to double check. Also buyers need to be prepared to pay the monthly Condo fee which will NOT be included in their mortgage payment. They will receive a separate bill from the property management company. In addition to the out-of-pocket fees, there are some overlays in the mortgage industry on interest rates. These overlays may vary between lenders, but they are pretty standard. If the buyer is putting less than 25 percent down and obtaining a mortgage longer than 15 years, it can either mean the buyer will pay points (usually around .75 points), or get a higher rate with no points. The only way to avoid this pricing adjustment would be to put 25 percent down or go with a 15-year mortgage.
As you can see, there are a few things to be prepared for when guiding a buyer or a seller through the purchase of a Condo. Being able to prepare everyone and work on gathering these early on in the process can go a long way toward a smooth settlement. Make sure your buyer is prepared and understands what they own and what their expenses are before they commit to purchasing a Condo!
David Fuchs, Traditions Mortgage
Facts, opinions and information expressed in the Closing Comments Blog represent the work of the author and are believed to be accurate, but are not guaranteed. The Lancaster County Association of Realtors® is not liable for any potential errors, omissions or outdated information. If errors are noted within a post, please notify the Association. Posts represent the author’s opinion and are not necessarily the opinion of the Association.