It has been established, for as long back as my 25 year mortgage career goes, that if a condo has a high investor level, you were going to have a hard time getting a mortgage. The investor level of a condo is how many units of the total investors own. For example, if a condo has 100 units, and 60 are owned by investors to be rented out and 40 units are owned as primary residences, then the condo has a 60% investor level.

It was always said that FHA wanted to see at least 51% owner occupancy and no more than a 49% investor level. And banks, PMI companies or Fannie Mae might require 60%, 65% or even 70% owner occupied levels, restricting the investor level to a low level. It has been historically shown that condo buildings that are more heavily owner occupied have better performing loans with fewer delinquencies, and this is why Fannie Mae, Freddie Mac, banks and PMI companies analyze this data.

However, I have discovered a guideline change for Fannie Mae and Freddie Mac that says if loan is for a primary residence, with 20% down, and if the condo building is established, that there is no analysis of the investor level at all. What defines a condo building as established is that the building is at least 90% sold and settled, no additional construction is planned, and that the homeowners association has been turned over from the developer to the unit owners.

The big news here is that if you have an established condo building, and are buying a unit as a primary residence, and have 20% down payment, then you do not have to worry about the investor level. 20% down is required because PMI companies still analyze investor level, so this would not work for a 5% down or 10% down loan.

On the one hand, if you love a certain unit and want to buy it at all costs, then this is good news. Of course, you may want to give consideration to buying in a heavily investor owned building for the same reasons that the banking industry does. But here are some scenarios where this has benefited the consumer:

-A client of mine wanted to refinance a loan in a condo building that has 12 units, 4 of which were owned by owner occupants, 7 were owned by investors, and 1 was still pending sale. The building had met the 90% sold and settled requirement, the homeowners had been in control of the association for over a year, and the unit my client wanted to refinance was his primary residence. With an owner occupancy of 33% and an investor level approaching 66% (depending on who buys the last unit) this building would have been impossible to finance up until recently. Under current rules my client will be able to take advantage of refinancing to drop his interest rate quite a bit.

-A client I have done loans for in the past wants to sell some condos he owns in a highly investor owned condo building. He was concerned that his buyers would not be able to get financing. I was able to tell him the good news that he could ensure his buyers financing as long as they were buying a unit as a primary residence and were qualified according to the above.

-A client wanted to buy a condo unit to live in as a primary residence in a building with a 51% investor level, with only 49% owner occupants he was concerned he would not be able to get a loan. I told him that as long as the building was established and he could meet the above parameters, then he would be able to get a loan.

This is big news for many condo buildings that have historically had higher investor levels and have thought they may be locked into being labeled as being a building that is hard to get financing in. These latest rules will help sellers sell, and buyers buy, and condo buildings get some investor owned units back in the hands of owner occupants.

A Non-Warrantable Condo is not a new style of condo, it is a condominium that does not meet the minimum standards set by Fannie Mae and/or Freddie Mac. In other words, the condo cannot be warranted to meet Fannie/Freddie guidelines. Most lenders will want a condo to be warrantable to Fannie or Freddie so that the loan can be sold to Fannie or Freddie, especially now that most banks and mortgage lenders are only selling to Fannie Mae and Freddie Mac. If a condo is not able to be warranted to Fannie/Freddie guidelines, it is usually due to the fact that the condo has a high investor level. Lenders prefer to see that a condo has 51% or more owner occupants with no more than 49% rentals, and in actuality they really prefer 60% owner occupied, or higher.

But there are a whole host of other things that a lender will analyze when looking at a condo to see if it meets Fannie/Freddie guidelines, and the rules vary depending on if the condo is new construction or existing/resale, such as:

1. Are the homeowners or developers in control of the homeowners association?
2. Is the project is subject to additional phasing or add-ons?
3. Are all common elements and amenities are completed?
4. What percentage of all units in the development are sold?
5. Is the condo undergoing any litigation?
6. Are of any of the unit owners behind on their dues?
7. And of course, what percentage of the units in the development have been sold to owner occupants?
8. And there is even more…

The bottom line is that when you are buying a condo, the banks and mortgage lenders will not only be underwriting your creditworthiness, they will also be underwriting the condo.

A CONDO QUESTIONNAIRE MUST BE COMPLETED BY THE PROPERTY MANAGEMENT COMPANY TO DETERMINE THE CONDO'S ELIGIBILITY.

Of course, you may not need a condo questionnaire if your loan approval comes back with a "Limited Review", which I just blogged about here.

The bottom line is that getting a condo loan is more difficult than meets the eye, and has a lot to do with the borrower's down payment, credit score, debt ratios and the condo itself. When looking to buy a condo always call a mortgage professional who can help research the financing options up front before you waste your time going under contract. When listing a condo for sale (attention all Realtors and sellers) ALWAYS consult a mortgage lender for advice on what type of financing is available and how much down payment will be required, so that you can properly market the condo for sale.

No, there is no such thing as a "no questions asked" loan. But, believe it or not, there is something called "Limited Review" for Conforming (loans at $417,000 or less) condo loans, and it makes getting a condo loan "much" easier.

When a lender inputs a Conforming condo loan application and credit score into an automated underwriting system, if the resulting loan approval yields a "Limited Review" as part of the approval, that means some questions related to the condo will not be asked during underwriting.

What a Limited Review specifically means is that a lender will not require much of the documentation that would normally be required when underwriting a condo loan. For example, a "condo questionnaire" would not be required. This is the biggest advantage of a Limited Review. If you are buying a condo that has what a lender sees as an issue, like a high investor level such as 50% or more (investor level is how many units in the building are owned by investors versus owner occupants), then not having to get the condo questionnaire that would alert the lender to that high investor level means you will get a loan approval where you normally may not (lenders have a problem with condos that have a high investor level).

Avoiding the condo questionnaire also saves the money that a property manager would charge for that form, which is typically $50-$150.

You will not get a Limited Review authorization on a condo loan on a 5% or 10% down loan, or with a 680 or 700 credit score. To get a Limited Review you typically need a larger down payment such as 20% down, a higher credit score such as 740 or higher, and you need to be an all around strong loan candidate.

Getting a mortgage to buy a condominium is getting more complicated. The best advice I can give you is to make sure you talk to an experienced mortgage professional BEFORE YOU WRITE A SALES CONTRACT. This applies not only to the market I cover most in Washington DC, Maryland and Virginia, but nationwide.

Checking with a lender beforehand ensures that the condo is able to be loaned on. You would be surprised how many condos cannot get financing, especially with Conventional mortgage insurance.

Below are some of the latest twists and rules that a bank or PMI company will be looking for:

If you need mortgage insurance (which means you are doing a Conventional loan and putting less than 20% down) a mortgage insurance company may take issue with the square footage of the condo. Some PMI companies will not approve mortgage insurance for condos below 1000 square feet.

MGIC has recently revised their guidelines to do PMI on condos as small as 800 square feet.

Radian is a mortgage insurance company that will not do PMI on condos less than 1000 sq ft as a rule, however, they will if the lender they are getting the loan from is in their "Platinum Group".

Getting a loan is also complicated by other factors, like what the appraiser states on the appraisal or what the bank believes about a certain area being in a "declining market".

The moral of the story is never to assume that getting a condo loan is a slam dunk, even if the buyer is well qualified with great credit.

It is impossible to keep up with all the latest rule changes, so you should be asking your lender if they are not asking you, questions like:

-are there minimum square footage requirements by the bank or the PMI company?

-will the bank, PMI company or appraiser cite the area as a declining market?

-if the area of the subject property is a declining market, what are the rules? (usually this means that you cannot do a maximum LTV loan, like a 95%, and instead they want an extra 5% down, so the loan would have to be a 90%, or you could look at going with FHA financing).

-what are the minimum credit score requirements of the bank, and the PMI company?

-what are the owner occupancy versus the investor level requirements of the bank? of the PMI company?

You can see how complicated it gets. Below is an email response I got from a bank representative, when I asked about doing a condo loan through them:

"Brian, the three PMI companies we deal with, RMIC, Radian and UGI limit us to 1000 sq ft. when the LTV is over 80% loan-to-value. If it is under 80% loan-to-value, our limit is 600 sq. ft. We also have a 30% investor concentration limitation no matter what the loan-to-value. And if the project is a condo conversion, it must have been completed in both sales and physical conversion for 3 years. Also, if you are doing any condos in Ocean City MD or any of the resorts, forget bringing those loans to us. We sell to FHLMC and we are being told that any condo that has weekly rentals is considered a short term rental and a condotel and not saleable to FHLMC. The Underwriters are required to check online to see if anyone in the project is offering it for rent and 9 times out of 10 there will be someone offering their unit for weekly or weekend rentals. Not sure if FNMA is doing the same. Bottom line, if you are considering doing a condo with us, give me all the details so I can run them by a senior underwriter."

And to show you what we loan brokers go through to do our homework to make sure we can get a loan approved, especially in a condo, here is another recent reply I got from another bank representative:

"Sorry for the delay in responding. On the road all day. There is no Conventional 95% condo PMI loan in existence. We can get PMI on a 95% loan in Washington DC on Single Family DETACHED only. RADIAN Mortgage Insurance Company used to do 95% condos, and that was everybody’s “go to” source for 95% condos for a while, which must have been what you used last time. But they recently stopped 95% condos, for all banks. MGIC is the same, they will only do a max of 90% on a condo.

And we used to do “non-warrantable condos” all day long, but now that we can’t get MI, we have stopped doing high investor level condos, and all the quirky condos. So you have to have 10% down now on a Conventional condo loan, and anything less will need to be 3.5% down on an FHA. If the building cannot get a spot FHA loan, the only way any buyer will get financing is 10% down, 20% down or all cash. And if you have a high investor level, it will likely need to be all cash, Fannie Mae and Freddie Mac won’t do high investor levels. So 20% down would not even be a help on a high investor level condo building."

I could how more, but I think you get the point that getting a mortgage for a condo in the Washington DC area is tricky, and to always consult a mortgage professional before getting excited and writing a sales contract on a new place.