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.