HUD is easing the requirements for condo approvals for a limited time. This is a great opportunity for home owner associations to submit their condo for HUD approval so that units in the condominium may be eligible for FHA financing.
Recently Travis Pittman of King 5 news shared his personal story about how he is unable to sell his condo in Kent. He sites part of the reason that he is unable to sell the condo is because of FHA requirements. I do agree, it’s important to keep your condo on FHA’s approved list, however the data that was provided in the article is not entirely correct.
A few weeks ago, I helped a Kent couple purchase a condominium located in Seattle for their daughter to live in while she attends college at Seattle University. They were prequalifed with their credit union, however the credit union was treating the transaction as if it were an investment property even though the couple (we’ll call them Mr. and Mrs. Kent) were not going to rent the property.
I enjoy receiving email like this from my readers:
I currently own a condo as my primary residence and am getting married soon. The mortgage and title is in my name only. We will soon like to look at moving to a bigger place and would apply for a mortgage on our new primary residence together while still keeping the condo to rent out. How will this situation affect getting approved for the new loan? Are there any changes that will need to be made to my current condo mortgage since it will no longer be my primary residence? Thanks in advance for your help!
Unless you're planning on refinancing your existing condo, there shouldn't be any changes that you need to make that mortgage because you are renting it out. If you are currently refinancing or planning to refinance the condo, you should let your mortgage originator know of your intentions to use the property as an investment property. On a side note, you may also want to check with your Home Owners Association or condominium bylaws to make sure that investment properties are allowed.
Qualifying for the new home will be impacted by the type of financing you select and the amount of home equity you have currently in the condo. If you have less than 30% home equity, you'll need 6 months reserves for all of your mortgages (your current residence/future rental and the new home) if you're considering conventional financing or you must qualify with both mortgage payments. FHA does not have this guideline at this time.
In addition, if you do not have a documented current two year history as a landlord, you may find that the entire mortgage payment (including the home owners association fees) may be factored into your debt with no credit for any rental income you receive on the new home.
Lenders are looking for extra reserves and making sure that people who are leaving their current homes have enough "skin in the game" (equity) so that they're less likely to walk away from their former residence once they've closed on their new home.
By the way, if the home you're buying with your future bride is located in Washington state, I'm happy to help you with your mortgage!
Condos come in many forms including high-rises, converted apartment buildings and even some town-homes may be condominiums depending on how they are legally described. If you’re planning on buying a condo and not paying cash for your purchase, here are a few things to look out for where lenders may have an issue with.
Fannie Mae’s latest hits to rate will be implemented by lenders any day. Condominiums are really getting spanked with a 0.75% add to fee if there is less than 25% home equity in the property. This will apply to both purchases and refinances for any mortgage except those amortized 15 years or less.
If you are considering refinancing your condo, contact your local mortgage professional right away (I can help you if you’re located in Washington state)…if you’re in the process of buying a condo and are “floating” your interest rate, I highly recommend considering locking.
PS: Cash-out refinances are also getting whammo’d by Fannie. Don’t wait!
Editors Update: Loan limits are different than what’s reflected below from when this article was originally written. Check with your local FHA approved Mortgage Originator to see what your loan limits are (or click on the link in the second paragraph).