In the past couple of years, condominiums have suffered the most severe blow in a real estate market that’s struggling overall. Although all signs point to a slowly stabilizing, what experts call “saleable,” market—evidenced by fewer days on the market and more activity in both Charlottesville and Albemarle—the health of our condo market still lags.
The main reason behind it is, simply put, the difficulty of getting a loan. Since securing financing is the most important step in becoming a homeowner, making prospective buyers jump through impossible hoops can only hurt an already weakened market.
According to Jeff Johnson of local lender MetLife Home Loans, “Any time real estate goes down in value, condominiums are the first to be hurt. It’s because condominiums have to adhere to certain rules and regulations and restrictions.”
In fact, the trick about condo financing is that finding a mortgage lender who is willing to finance a loan will not depend solely on the usual stuff—the borrower’s portfolio, liquidity, down payment and credit score. The status of the condo development itself will also play a role. A complex can either be warrantable—with a much higher chance of being financed—or nonwarrantable—meaning it’s not eligible for financing through Fannie Mae and Freddie Mac and is subject to strict guidelines.
If the ownership of the development is still in the hands of the developer, it’s nonwarrantable. If the development is multi-use, with commercial space and residential units, it’s nonwarrantable. If an individual owns more than 10 percent of the total units in the development, it’s nonwarrantable.
“The biggest thing you are looking at is the owner-occupied units compared to investment units,” says Johnson. In fact, if less than half of the condo units are owner-occupied, which leaves the majority of units rented out, it’s (you guessed it) nonwarrantable.
Although some lenders refuse to finance condos, Johnson says it can be done, albeit with great difficulty.
“You can get a loan if [the development] is nonwarrantable, but the bank would have to portfolio it, [meaning] they are going to hold it within their portfolio; they are going to use their own money,” he says.
There is another obstacle to condo financing. “If the condominium is nonwarrantable, or warrantable for that matter, and the HOA fees are more than 15 percent delinquent, the loan cannot be obtained,” says Johnson.
Another option would be to have a private investor add the loan to his or her portfolio. “Those are your only options.”
Know that the condo market here isn’t as bad as it could be.
“A lot of people [around the country] are losing their shirt, but some condominiums are in a desirable area and they are still bringing out a pretty price,” says Johnson. In Florida, for example, “you can buy a condominium pennies on the dollar,” but it’s practically impossible to find financing.
Locally, although the condo market has declined, Johnson says it hasn’t been as bad as other cities around the country. “Charlottesville is holding pretty well,” he says. “We are in a unique market and we are doing a lot of loans for condominiums.”
Be prepared for the mortgage process to take some time, and hedge your bets. “What I would recommend doing is calling a reputable lender and look up to see if the condominium is approved by [the Department of Housing and Urban Development] or Freddie Mac and Fannie Mae,” he says. “You just don’t waste a lot of time and energy.”