Wednesday, August 28, 2013

So you want a Condo?

Mortgages For Condominiums

Getting a mortgage for a condo can sometimes be a challenge. Last decade, lenders were burned on condos for a variety of reasons and so they've bounced back on condo loans a bit more cautious and a bit more wise.
Today's buyers of condos have fewer financing choices as compared to buyers of single-family detached homes.
As one example, buyers using conventional mortgage financing via Fannie Mae or Freddie Mac pay a premium for all loans with less than 25% equity. For this reason, buyers of condos and co-ops are encouraged to cap loans at 75% loan-to-value (LTV).
Condo loans above 75% LTV remain acceptable and approvable, however, the accompanying mortgage rate and/or closing costs will likely be higher.
VA loans for condos are available, too. VA loans allow 100% financing with no mortgage insurance required. Mortgage rates tend to be relatively low with a VA loan because all VA loans are guaranteed by the government.
In nearly all cases, though, buyers of condominiums will want to verify a building's warrantability.
"Warrantability" is a mortgage term whether mortgages in a given condo building are eligible for purchase by Fannie Mae or Freddie Mac. Non-warrantable condos are sometimes denied for funding, but not always.
A building's warrantability is based on a host of traits, some of which include :
  1. No person owns more than 10% of the building units
  2. No more than 50% of the building's units are active rental units
  3. No more than 20% of the building is dedicated to commercial/retail space
To determine whether a building is warrantable or non-warrantable, mortgage lenders will often use a "condominium questionnaire", which addresses the lendability of a building.
Non-warrantable condos can still be financed, it should be mentioned. Product availability, however, is limited and mortgage rates are sometimes higher.
According to the most recent Case-Shiller Index, home values climbed 11.9 percent nationwide for the 12 months ending June 2013. This jump marks the second-largest one-year increase in home valuation since the Case-Shiller Index launched 26 years ago.
May 2013 was the largest.

Each of the Case-Shiller Index's 20 tracked cities posted annual gains in June, led by Las Vegas, Nevada; San Francisco, California; and Phoenix, Arizona. Home valuations in the Las Vegas are up 25% from 12 months ago, which claws back against the heavy losses sustained last decade in the area.
The "last place" finisher in the June 2013 Case-Shiller Index? New York City.

As compared to one year ago, home values in the city's five boroughs -- Manhattan, Brooklyn, Queens, the Bronx, and Staten Island -- rose just 3.3 percent, which is well below the U.S. national average.
However, the Case-Shiller headline figure tells just part of the story.

In New York City, the market is thick with condominiums and co-ops and the Case-Shiller Index ignore those homes types in its calculations. If you were to add New York City condos and co-ops to the Case-Shiller Index data, we'd see that the city is performing quite well, actually.

In New York, condo values are up 7.7 % since last year -- more than double the city's Case-Shiller Index reading. Similar improvements are present in other Case-Shiller Index markets, too.

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