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Applying for mortgage a challenge today

May 29, 2011

Q: My husband and I have great credit scores but we are apprehensive about the challenge of getting a mortgage for a condo we would like to buy. Our Realtor told us that it's much easier to get a loan for a house that isn't part of an association because of today's economic challenges.

What's that about? I'd really like the amenities of a condo but don't want a grueling mortgage application process.

A: Applying for a mortgage today is a bit more challenging than in the past, especially for condo purchases. The foreclosure crisis has created an unhealthy financial situation in some community associations where owners are not paying their association fees and association management is facing a financial crisis. Lenders do not want to loan people money to buy in financially challenged communities. This, of course, adds to their problem.

Borrowers today need to qualify in two categories, as themselves, and for the proposed condominium's association. Qualifying the borrower is similar to the past but lenders now follow condominium mortgage guidelines regarding the status of the association. These come from the Federal Housing Administration, Fannie Mae and Freddie Mac.

Guidelines call for more than half of the condo units to be owner-occupied. They do not want more than 15 percent of the owners to be delinquent in paying their assessments, regular or special. They don't want more than 10 percent of the units to be owned by one owner. If the development is more than 12 months old, they want all the amenities to be completed,.

Down payment requirements have changed also. Buyers who make a down payment of less than 25 percent will have to pay an additional 75 percent of the loan amount at the closing or a higher interest rate of about 25 percent.

A building that has already received an FHA approval has the advantage of the possibility of buying with a 3.5 percent down payment. The association would have shown good financial health and that it has adequate insurance, a budget with reserves, no anticipated special assessments and no pending lawsuits. Realtors usually know which developments have FHA, Fannie Mae and Freddie Mac approval.

Your first step should be to explore the status of the development you are considering. The state-required association questionnaire provides information on condo fee delinquencies, insurance and other factors. The development you are considering may already be FHA approved and the loan application process simpler than you think.

As with any major decision involving real estate, seek the advice of an attorney who is knowledgeable and experienced in these matters, especially given today's challenging times.

Attorney Sylvia Heldreth is a certified specialist in real estate law. Her office is located at 1215 Miramar St., in Cape Coral.

This article is not intended as specific legal advice to anyone and is based upon facts that change from time to time. Individuals should seek legal counsel before acting upon any matter involving the law.



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