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.
DEAN & DEAN'S TEAM CHICAGO