Condominium Financing/Review

Transcription

1 Condominium Financing/Review Lisa Welch Vice President Project Approval Manager

2 Course Outline & Overview Condominiums Defined Conventional Financing for Condominiums Questionnaire Red Flags Budgets FHA,VA, RD and State Housing Insurance Requirements 2

3 Condominium - defined A condominium, or condo, is a form of home ownership where a housing unit that is part of a larger piece of real estate is individually owned while common land and facilities are owned jointly. Condominiums are formed by legal documents, including the Declaration of the Condominium or Declaration of Trust and By- Laws. Condominium is the legal term used in the United States and in most provinces of Canada. 3

4 Conventional Financing Condo Approval Process Listing agent to provide management company information and contact info to the lender Lender to obtain basic information needed to either do a streamline/limited review or a full review of the condominium Management companies often charge fees to complete or provide a condo questionnaire and any required documentation. For a Full Review of the project, recorded documents 4

5 Conventional Financing FHLMC/FNMA are required. Who will pay the fee? This should be negotiated into the sales agreement Additionally, the buyer s review of the following items should be a condition of the sales agreement whenever possible + Review of all recorded documents + Review of the current HOA financials + Review of Master Insurance coverage 5

6 Conventional Financing FHLMC/FNMA Limited Review/Streamline Review -- Can be used for new detached condos -- Can be used for 2-4 unit condos -- Can be used for all established condos Full Lender Review -- Can be used for new attached condos -- Can be used for 2-4 unit and/or established condos -- Required if the property is an investment purchase 6

7 Conventional Financing Streamline/Limited Review All units, phases and common elements are complete and there is no additional phasing planned At least 90% of the units are sold Unit owners are in control of the HOA The subject loan is O/O and the borrower is putting at least 0% down, 25% on a Second Home. 7

8 Conventional Ineligible Projects Projects where one person/entity owns more that 0% of the units Projects that do not have a minimum 0% budget line item going to Reserves Projects currently involved in litigation (with some exceptions) Hotel or Resort project Projects sold with excessive Seller Contributions Continuing Care Retirement Community 8

9 Conventional Financing Full Review/Existing Projects All units, phases and common elements are complete and there is no additional phasing planned At least 90% of the units are sold Unit owners are in control of the HOA The subject unit is an investment property The down payment is less than 0% If the subject unit is a primary residence, there is no owneroccupancy requirement. If the subject unit is an investment, at least 50% of the units in the project must be owner occupied. 9

10 Conventional Financing Full Review/New Projects All units in the project are not complete or the project is subject to additional phasing The developer has not turned over control of the HOA to the unit owners Fewer than 90% of the units are sold* *At least 50% of the total units in the project or at least 50% of the sum of the subject phase and any prior legal phase(s) must be conveyed or under contract to purchasers that will occupy as their primary residence or second home. 0

11 Pre-sale example Total # of Units in phase Phase I Phase II (subject phase) Phase III Phase IV # of Units sold Units O/O Units Non O/O (*no single entity owns more than one unit) Units for sale Option : Does this meet the owner occupancy requirement for the total project? Total O/O unit in the project: 47 units/400 units = 37% pre-sale Option 2: Does this meet the owner occupancy requirement for subject phase plus any prior legal phase? Total O/O units in the subject legal phase Plus total O/O units in all prior legal phases: 57 units + 90 units/200 units = 74%

12 Questionnaire - Red Flags In 206 Fannie & Freddie introduced common use questionnaires. Although lenders are not required to use their version, the agencies were hoping that this might make it easier for all users to know exactly what information is required to be reviewed depending on the project type. 2

13 Review of an HOA's Financial picture Budgets can vary from HOA to HOA and line items in a budget can vary depending on the size of the project. Both FNMA and FHLMC have the same requirements on what a lender needs to review on a budget: The lender must determine that the budget is adequate or that it allows for allocations pertinent to the type of condo project. And, that the budget provides funding of replacement reserves for capital expenditures 3

14 Financial review, cont. and deferred maintenance that is at least 0% of the budget. To determine the HOA's minimum requirement you would multiply the association's budgeted annual income from common expense fees by 0%. Fees for additional income items such as a current special assessment, Cable TV or Internet Access do not need to be included. 4

15 FHA Financing Condo Review Documentation Requirements All recorded documents: Declaration or Declaration of Trust Master Deed By-Laws Rules and Regulations Current year s budget Previous year's Income/Expense statement Balance Sheet, no older than 90 days* Management Agreement, if applicable Master Insurance Certificate Flood Map 5

16 Potential changes for 208 of HUD Guidelines Spot approvals** Recertify every three years (currently every two) Changing the investor guideline from 50% to a range of somewhere between 25% and 75% Allowing commercial space of somewhere between 25% and 60% of the total area (currently 25% and up to 35% with an exception from HUD) 6

17 VA, RD and State Housing Guidelines VA RD New Hampshire Housing and Mass Housing 7

18 Insurance Requirements Master Liability coverage must be $million per occurrence and include "Separation of Insureds" Standard extended hazard coverage with Inflation Guard Building and Ordinance coverage Maximum deductible = 5% of the face value of the policy If there are 2 or more units, Fidelity, Crime or Employee Dishonesty coverage is required. Fidelity insurance must cover all the funds in custody of the HOA at any time. As well, a professional property manager must have the same coverage required of the HOA. Conventional With proper financial controls in place, the calculation can be reduced to 3 months condo fees FHA minimum requirement is 3 months condo fees + the current balance in the reserve account 8

19 Insurance Requirements HO6 is required if the legal documents do not require the units to be covered by the HOA master policy. If the legal documents do require the HOA to cover the units this coverage is know as All-In or Walls-In. Flood Insurance: If any part of the principal structure is located in an SFHA flood coverage is required on the principal structure. If a non-residential detached structure attached to the land has any part located in an SFHA, flood is not required on the non-residential detached structure. If a residential detached structure has any part located in an SFHA, flood coverage is required on the residential detached structure. 9

20 Insurance Requirements The master Flood policy must be at least the lower of 80%of the replacement cost, or The maximum insurance available from NFIP per unit which is currently $250,000 The current maximum allowable deductible is $25,000 If the HOA does not meet the minimum unit requirement, the borrower must maintain a supplemental policy to close any gap. 2 0

21 Questions Lisa Welch Vice President Project Approval Manager 2