Condominium Guidelines
CONVENTIONAL LOANS:
Because of the recent changes to the Conventional Condominium (Condo)
Review/approval processes it is absolutely imperative that you understand current Condo guidelines
BEFORE you move forward with buying or selling a Condo property. Conventional Condo’s present
financing challenges better addressed at the beginning of the transaction, as opposed to later when a
contract is executed but the property does not qualify for traditional mortgage financing.
Condominium defined: A form of ownership where units are owned by individuals but the land
and common areas are owned jointly with all owners.
So what should you do?
1.
Do NOT rely on the project name for determination. Many projects have misleading
names. The developer names the project “Shady Pines Townhomes” so people assume that
because the word “Condominium” isn’t mentioned that it’s not a condo and doesn’t require
project approval.
2. Do not accept MLS information or verbal information. Get a copy of the legal
description. Blindly accepting what you read on the MLS listing or what the current owner
says can cause confusion. Verify the legal description of the property.
3. READ the legal description – Does the legal description of the unit include the lot? If not
you probably have a condominium form of ownership. Check the project documents and
check with the title company to confirm the property type.
Once you are sure you are dealing with a condo, the property must be reviewed and approved in order
to have the mortgage note purchased by Freddie Mac or Fannie Mae.
INELIGIBLE PROJECTS:
• Projects where the Homeowner’s Association or Developer is involved in litigation relating to
safety, structural soundness or habitability or functional use of the project
• Projects where a single entity owns more than 10% of the total number of units
• Hotel/Resort/Timeshare
• Any project with non-incidental business operations (spa, health club, etc.) owned or operated
by the Homeowners Association
• Any project with > 20% of total space used for non-residential or commercial purposes
• Projects that represent a legal, but non-conforming, use of land (if zoning prohibits rebuilding
to current density)
• Project where an owner may hold a single deed to more than one unit
• Projects that contain manufactured homes
LIMITED & FULL Conventional Loan Condo Reviews
LIMITED REVIEW for established projects must meet the following requirement:
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Project must be fully complete and not subject to additional phasing
At least 90% of total units conveyed to unit purchasers other than developer
Control of homeowner’s association has been turned over to the owners
Must meet following Occupancy/LTV/Underwriting requirements:
OCCUPANCY
Primary Residence
2nd Home
MAXIMUM LOAN TO VALUE
80%
75%
LIMITED REVIEW Required Documents:
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Completion of the limited review condo questionnaire by the HOA
Copy of the master insurance policy (must include Building Ordinance or Law Endorsement,
Boiler and Machinery/Equipment Breakdown Endorsement and Fidelity coverage for projects
consisting of more than 20 units),
Review of the borrower’s HO6 contents policy from their home owner’s insurance provider of
choice, and
Property appraisal report (completed by lender’s selected appraiser)
FULL REVIEW for established projects must meet the following requirement:
OCCUPANCY
Primary Residence
2nd Home
Investment Property
MAXIMUM LOAN TO VALUE
95%
90%
80% for financed properties 1-4
75% for financed properties 5-10
FULL REVIEW Required Documents:
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Purchase agreement (if applicable),
Completion of the full review condo questionnaire by the HOA,
Copy of the master insurance policy (must include Building Ordinance or Law Endorsement,
Boiler and Machinery/Equipment/Equipment Breakdown Endorsement and Fidelity coverage
for projects consisting of more than 20 units),
Review of the borrower HO6 contents policy from their home owners insurance provider of
choice,
Copy of the annual property budget, master deed & by-laws, and
Property appraisal report (completed by lender’s selected appraiser)
*** Please note the approval of new construction condos, where the phase is not 100% complete, are
extremely difficult to be approved. It is unlikely such a property would be able to close with traditional
lending sources and are typically done with a portfolio lender.
ernment Loan Condominium Guidelines
FHA LOANS
The project must appear on FHA’s approved list: https://entp.hud.gov/idapp/html/condlook.cfm.
Exceptions are:
o FHA-to-FHA streamline refinance transactions
o Projects meeting the site condominium definition and requirements.
o HUD REO properties
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FHA will not insure any mortgages in an approved project if 50 percent or more of the
units are already FHA-insured.
Review the “expiration date” and any conditions that need to be met.
No more than 15% of the total units can be 60 days or more past due on HOA dues (after
August 31, 2016 this is reduced to 30 days)
Master Insurance policy must cover hazard, Flood (if applicable) and liability. Projects
with more than 20 units must also have Fidelity insurance
Borrower must carry an HO6 (walls-in) insurance policy from their choice of insurance
carriers.
Project Status
Existing > 12 months old
Proposed, Under Construction
or Existing < 12 months old
Requirement
At least 50 percent of the units of a project must be owner
occupied or sold to owners who intend to occupy the units
FHA will allow a minimum owner-occupancy amount equal to 30
percent of declared units. One year after the first unit
conveyance, the project requirement is at least 50 percent owneroccupancy of the declared units.
VA LOANS
Attached or detached Condo’s must appear on VA’s approved Condo list:
https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch
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Make sure to review any possible conditions that may be listed under the status section of
the approval.
. This is no longer the case
To obtain VA approval for a Condo not on VA’s list, a written request may be sent to the
local VA office along with the extensive required documents and can take up to 6 weeks
depending on VA workload.