Q: I was reading an article of yours called “Problems Refinancing Condo with New Lending Guidelines.” I am on the board of directors of a condo association. I am wondering if you can help me figure out the specific lending guidelines of FHA, Freddie Mac and Fannie Mae, particularly as they relate to insurance and to cash reserves.
A: When it comes to FHA loans, condo and co-op buildings must be approved by FHA before any loan can be given to a borrower in that building or condominium community. For Fannie Mae and Freddie Mac, condominiums and co-ops must follow certain guidelines for prospective buyers in those buildings or condominium communities to obtain loans.
The rules for Fannie Mae and Freddie Mac can vary by type of condominium building to the area in which the condominium building is located. There are many variables. If your condominium building is located in an area designated by Fannie Mae and Freddie Mac as an area with declining real estate values, the guidelines may differ from a different geographical area that has stable or increasing real estate values.
For example, if your building is in an area that has been designated as declining in value, Fannie Mae and Freddie Mac may require the condominium association to have greater reserves to weather any potential real estate downturn. In addition they may require the association to place at least 10 percent of its annual budget into the reserve account for the association.
These are just a few of the requirements. For more information, you can go to Fannie Mae’s or Freddie Mac’s websites.
They have some information online relating to the review and approval of condominiums. However, some of the information is written for people that deal with these documents all the time. You might find it useful to work with a mortgage lender or mortgage broker that you know and are friendly with that can help you with the documentation.
FHA rules are quite different and you should talk to a lender in your area that specializes in FHA loans. FHA might require that condominium projects be approved in advance by FHA before FHA makes any loans on those projects.
The process of getting approved can be lengthy, but a mortgage lender that originates FHA loans should be able to assist your association to obtain FHA approval.