"You've Caught the NET!"



New, far stricter underwriting requirements will hit condominium buyers with added force, as our Team, and one of our clients, recently found out here in Chicago.

One of our moderate-income clients, purchasing a smaller, inexpensive one-bedroom unit, had his application last-minute rejected due to the building being located in a "declining market" zip code, as defined by the Private Mortgage Insurance Company.  The PMI firm required a minimum 10% down payment from our client - he was scraping and saving to barely bring 5 percent!

Further, the building would not support a lower-down-payment FHA loan - it is a new conversion, with less than one-third of the units sold (FHA requires 90% sold in newer developments to qualify).

Our client will not be alone in his frustration!

Effective May 1st, AIG United Guarantee, a large U.S. Private Mortgage Insurance Company, will no longer offer PMI on loans for condos in "declining market areas," according to its own zip code list.  United Guaranty and other mortgage insurers will now require minimum 10% down on ALL condo purchases, and will not write PMI in properties less than 70% owner occupied.

These new PMI guidelines will affect all who put less than 20% down on their new condos, or refinance less than an 80% Loan-To-Value - regardless of the borrower's credit scores of financial history.

New, more stringent Fannie Mae guidelines require lenders to more closely review condo association documents and financials to assure adequate capitalization, and sufficient reserve funds for emergency repairs or other projects.  There are also new, stricter requirements concerning late-paid assessments, and the percentage of building space dedicated to commercial rather than residential use. 

Some lenders are making their own guidelines even tougher than the new ones from Fannie Mae, to assure compliance with the new rules.  Many potential condo borrowers in borderline buildings may be rejected.

One Connecticut lender, Jeff Lipes of Family Choice Mortgage, is concerned that even strong borrowers, with high FICO Credit Scores and strong down payments, may face loan denial due to the financial characteristcs of the condo building they are considering.

See our post today via BlogChicagoHomes.comfor more info, as well as a link to Kenneth R. Harney's article in last Sunday's Chicago Tribune.


Comment balloon 5 commentsDean Moss • April 23 2008 04:21PM


Wow, They are really helping the economy along.
Posted by Jane Wallace, CRS | SRES, Denver Real Estate (HomeSmart Cherry Creek) over 11 years ago
you know, I also heard that they wonrt lend out money if more than 30% are backed up on HOA dues. is this true also?
Posted by Josué E. Silva (Tierra Antigua Realty) over 11 years ago
Dean... I am already seeing the squeeze on condo sales here in Connecticut.  People just starting out that do NOT have 10% to put down are now unable to purchase condos.  This was usually the venue then would take to building equity, and moving into a home in a few years.... not anymore.
Posted by Valerie Osterhoudt, ABR, Cromwell, CT Real Estate ~ 860.883.8889 (Johnson Real Estate, Inc.) over 11 years ago

Josue -

I wouldn't be surprised!

Guidelines everywhere are being tightened.


Posted by Dean Moss, Dean's Team Chicago IL Real Estate Team (Dean's Team - Keller Williams Realty Partners Chicago IL) over 11 years ago
What hurts is when guidelines change in the mist of you working with a buyer. Everyone can't jump from 5 to 10 to 20 percent just like that. That discourages buyers to continue.
Posted by DeAndrea "Dee Dee" Jones, The NorthernVARealEstateLady & DMVRealEstateChick (Home Buyers Marketing II, Inc.) over 11 years ago

This blog does not allow anonymous comments