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Condo Financing

0:00:00.0 Speaker 1: Hello, I wanted to do a video to help you with condominium financing. You’ll typically be looking at three different types of financing, a conventional loan or a VA loan, if you’re a veteran, or an FHA loan. Starting with the conventional financing, you will find that on a conventional loan, there’s no master approved list of approved conventional loans, like there is for the VA approved condos and the FHA approved condos, but there’s certain things that you need to make sure that the condominium is able to meet. And the easiest way for me to explain that to you is using my website. If you go to getloans.com, click on the blog, and you’re gonna search my blog for latest condo rules and click search, and it should bring up… Very first condo blog is latest condo rules. That’s the one I wanna reference. And you would scroll down and the most recent, 10 important things to look at, and I’ll highlight some of the more important ones. Number one, the condo should not be undergoing any litigation. It’s a big no-no if the condominium is undergoing any litigation, however, it’s not an automatic loan rejection if the condo is involved in litigation.

0:01:21.2 S1: If the condominium is suing a developer, let’s say, for something that’s kind of minor, that may be passable, but if the condominium is being sued for something, especially if it’s structural-related, then you’re gonna have a real problem getting financing and probably will not be able to get a conventional loan, nor an FHA loan or VA loan. In that case, you’d have to pay cash or go with a portfolio loan, which get really expensive, and we’re not going to address here, because those are few and far between. Number two doesn’t come into play much. Number three, if you’re looking for a new construction condominium, typically you’ll need to see that 50% of the units have been pre-sold, then the condo is allowed to start going to settlement. So if you’re early in the building and one of the first to buy, you may have to wait a while before you go to settlement and get your financing.

0:02:18.1 S1: Four, standard. Five, there should be no special assessments pending, that’s an important one, to get financing as well as personally. I don’t know that you wanna buy in a building where there’s… Especially if it’s a large special assessment coming due, not sure you wanna be involved with that. There’s usually a story behind the special assessment. Six is standard, adequate Certificate of Insurance. Seven is important, making sure that there is a satisfactory reserve account in the budget, and there’s a certain formula for that, and you can read about that in the blog. Eight, this is rare, but you can’t have more than 20% of the total space be dedicated for anything other than residential space, like commercial space. So if you’re looking at a building where the first three floors are commercial and then the next three are residential, and maybe it’s almost a 50-50, you’re not gonna get a conventional loan in that.

0:03:14.0 S1: Potentially you’ll get a portfolio, like I said, is expensive. It’s a big down payment. Typically, it’s an adjustable rate mortgage, not a fixed rate mortgage. And then number 10 is important. Check to see if in the building that you’re looking in, if there is more than a couple of units owned by one investor and the rules have changed. You’ll see down here, it used to be if one owner owned more than 10% of the building, no go for a conventional loan. That’s changed. Now, if you’re looking at a condominium that’s a little bigger, 21 units or more, then they’re looking for 10%. For example, if you’ve got one unit owner that owns five units on a 25-unit building, well, they own 20% of the building, you can’t get a conventional loan in that case. If you’re looking at a condominium where there’s 10 units and one person owns three units, well, they own over the three units is 30% of the building, you’re not gonna get a conventional loan on that.

0:04:22.9 S1: Now, let’s pivot away from that. I think the takeaway on a conventional loan is, it’s interesting to read this blog, and I think it’s also important, talk to a lender, feel free to reach out to me and let’s talk about the particular condominium that you’re looking at. Unfortunately, a lot of the information that a lender is looking for on conventional financing isn’t found out until halfway through the financing where we’ve gone through half of the process and we’ve gotten a budget, a condo questionnaire. A condo questionnaire is where the property manager answers a lot of questions for us, it can be a very manual process. There’s questions that we would not find in the declarations and bylaws, which you get at the beginning of buying a condominium. So, it could take a couple of weeks to get a condo questionnaire easily. There’s a fee for it, they pass that fee on to you. By the time two or three weeks has passed, we may find out through the condo questionnaire and the budget that there’s a problem. One of these things is not met, one of these guidelines is problematic or another one. This isn’t by any means every single guideline, just some of the more important ones.

0:05:34.7 S1: You may be at that point, if you can’t get the financing that you want, you may be out an appraisal fee, ’cause the appraisal probably would have been done at that time, the condo questionnaire fee. You may have done a home inspection at that point and unfortunately, there’s no way to get this before you write a contract, you just have to get involved, write the contract and hope it checks out. But knowing some of the things I just pointed out, you can ask some important questions and see if your realtor or the listing agent knows of any red flags that you can address in the beginning or maybe avoid putting an offer in altogether, if you find out that the condominium just isn’t very well-run. It’s pretty rare, to be honest, most condos I find are well-run, but that doesn’t mean that you’re not gonna have a problem, and it doesn’t mean that you shouldn’t do a little due diligence.

0:06:23.9 S1: Now, let’s go to VA financing. You’re a veteran, you wanna buy a condominium, is it the same process as we just discussed with a conventional loan? No, very different. On a VA loan, the veteran and the veteran’s lender will have to make sure that the condominium is on the VA approved condo list. There’s a website for that. If you can read the print, if it’s not too small, here’s the URL, lgy.va.gov G-O-V/lgyhub/condo-report. Hopefully, you can just see it here in the screen. It’s pretty simple. Let’s say that you wanna see… You’re looking for approved condos, of course, we don’t want condos that have been recently rejected, or were formally approved but now that approval has lapsed. We want currently approved VA condos.

0:07:25.6 S1: Let’s say we know the name of the condo we’re looking for, and let’s say it’s The Cairo, which is a condominium in Washington DC. So we’ll collect the state, ’cause there might be some condominiums named The Cairo in other states. So we wanna narrow it down by state. Nothing else we need to worry about, forget the regional office, the ID number, they can’t just… This is good enough. We’ve got the city. We’ve got the name. Click Submit. Okay, looks like The Cairo is on the list, but let’s check its status. Accepted without conditions. The submission to the VA was March 8th, 2016, and it looks like the review was completed a little over two weeks later, and it’s been on the approved list since March 24th, 2016, so that is really great.

0:08:13.3 S1: Let’s say you wanna look for all the VA-approved condominiums in a certain city. So now we’re gonna click for VA approved condos. Now let’s say we wanna look in Rockville, Maryland. Let’s find the drop down, go to the state. Nothing else is needed. Forget the ID number. We don’t wanna put in a name because we wanna know every single VA approved condo. Where can I look as a veteran? How many buildings are VA approved? We click Submit. There’s about three pages here. Okay, so three and a quarter pages. Let’s click on one. Let’s pick the West Side at Shady Grove Metro. It’s been accepted without conditions, so there’s no special conditions or reservations by the VA. This is a recent one. It was submitted September 30th, 2021, and it was approved October 14th, 2021, so the approval took a couple of weeks. So this is now a fairly newly approved VA condo that is on the VA-approved list, that a veteran can go in and get a VA loan, which might be VA no-money down financing.

0:09:29.1 S1: Now let’s consider FHA financing. Maybe somebody wants to do a 3.5% down FHA loan. The link for that is, entp, Edward, Nancy, Tom, Paul.hud.gov/idapp, Paul, Paul/html/condolook.cfm. So, you would go in… Let’s again say we just wanna do a broad search. We’re gonna pick the District of Columbia. We want approved condominiums. Let’s say that’s all we want. We click send. This is probably gonna be a fair amount. So, you can see we scroll down, they do it alphabetically, so we are not even out of the numbered ones yet. You see down here in small print, it’s a button that says next. When you click on next, now we are getting down into the D, E, G, let’s click next again, H, I, J, K, L, M, N, O, P, Q, keep going. So typically, you’re gonna find there are more FHA-approved condominiums than there are VA-approved condominiums.

0:10:46.7 S1: Here we are, I think this is gonna be the last page coming up, W, Y. Okay. So what we just go through about, 10 pages, 8 to 10 pages? With at least a dozen of FHA-approved condos on each page, so maybe 120, 140, 150 FHA-approved condos in DC. Whereas on the VA list, if we go back to the start, let’s go back to the very start of the VA list, let’s click approved. Let’s say we want all the VA approved condominiums in DC, and let’s click Submit. Okay, wow. So we have nine pages. We have, wow, 13, 17, 21, 25, 29. Okay, so it’s starting over again. That’s interesting that it’s lapping itself. But we have maybe a legitimate 30 pages of VA approved condominiums.

0:11:44.3 S1: Interesting note is, so maybe there’s a similar amount of VA and FHA approved condominiums. However, this as a percentage of total condominiums in a certain market is probably on the smaller side. I’m just guessing, but you know, there are probably… We were probably looking at 10… Maybe 150 to 200 approved VA condominiums in the District of Columbia. Maybe more FHA-approved condominiums. But there’s hundreds and hundreds and hundreds of condos in the district. So, there’s only a certain percentage that are approved VA, and a veteran can buy in those buildings, and there’s only a certain percentage that are approved FHA. And if you wanna get FHA financing you’re not… In other words, you’re not gonna be able to buy as a veteran in every single building, far from it. You’re not gonna be able to get an FHA loan in every single building. Far from it.

0:12:48.8 S1: So, come to these URLs. Do a search for your building. Do a broad search to see which condominiums you can focus on. Talk to your realtor. Talk to me. And we’re just scratching the surface here of what goes into financing for a condominium. There’s quite a bit more to discuss, but these are some of the real important highlights for conventional VA and FHA financing. So feel free to reach out to me. Ask me a specific condo-related mortgage question, or just ask me a general mortgage question, or feel free to get pre-approved and we can talk about your finances, while we talk about condominiums, in general, as well. Thanks very much.