2022 Changes in Condominium Financing for Conventional Loans, and Some Great Alternatives!

​On January 1, 2022, Conventional Financing will be changing with respect to financing of Condominiums. The change applies to all Conventional loans across the board, regardless of the lender, bank or credit union offering this type of financing.

CONDOS ARE UNIQUE WHEN IT COMES TO MORTGAGE FINANCING

You see, Condominiums are a unique property type when it comes to mortgage financing.  Unlike other property types (such as single family homes, townhomes, villas, and multi-family homes), when you apply for loan approval for a Condominium, you must qualify for the loan yourself AND the Condominium itself must qualify for the loan as well. 

The lender will be inspecting the Condominium to see several factors such as:

• Budget Reserves
• The percentage of units that are owner-occupied, second homes, and investment
• How many units are owned by a single owner
• Any pending litigation
• Sufficient Insurance Coverage
• And more.

In the past, lenders had the option to inspect the Condominium in 2 different ways:

• LIMITED REVIEW (available only when the size of the Conventional loan is 75% of the purchase price)

• FULL REVIEW

With the LIMITED REVIEW, the process is fairly simple and straight-forward.  The Condominium completes a short questionnaire for the lender.  Based on the answers provided, the lender compares the answers to the loan program guidelines to determine if the Condominium meets eligibility criteria. If it meets all criteria, then the Condo is approved!

With the FULL REVIEW, the process is more involved. With the Full Review, the Condominium supplies all pertinent documentation to the lender for review.  This includes the budget, meeting minutes, full insurance policies, any pending litigation, and a full list the occupancy details, and more.  There are no shortcuts in the process.  It’s designed to be a comprehensive and rigorous approval process to uncover any potential active problems or problems on the horizon for the prospective homeowner.  If the Condominium can pass this review, then it is approved!

A Limited review can be just a few pages, whereas a Full Review can be 100’s or even 1,000’s of pages for the lender to review.  

HOW ARE CONDOS DIFFERENT FROM TOWNHOMES, VILLAS, and CONDOTELS?

Even though all of these property types have a homeowners/condo association in common, the similarity ends there. A Condominium is different from a townhome or villa, primarily because of the homeowner does not own the dirt under the unit with a Condominium.  Condominiums are also different than Condo-Hotels (aka – Condotels).   The primary difference between a Condominium and a Condotel is that the Condotel has short-term rentals and amenities built into the project, such as a concierge desk, rental desk, boat-slip management, and other resort-like amenities.  Condotels are not eligible for Conventional financing, regardless of how well-run they may be.   

Ultimately, the difference between Condominiums, Condotels, Townhomes and Villas comes down to the Legal Description of the property. Here in Florida, visually spotting the difference can be tricky.  The large Condo Towers are easy to spot; however there are many homes that look exactly like townhomes, but in fact, turn out to be Condominiums once the home’s legal description is inspected.  Regardless of how it looks on the outside, the legal description is the final word.

 If it’s a Condominium, townhome or villa, it may be eligible for Conventional Financing.  If it’s a Condotel, it is not eligible for Conventional financing.   For Condotel financing, we offer several financing options such as our Private Client Portfolio Program, Flex Mortgage Program, Bank Statement Loan for Self-employed business owners or our 1099 Income Program for Independent contractors.  (These same programs can also be used to buy a Condominium that is not passing a Full Review and you still wish to buy the Condo) 

WHAT’S CHANGED IN 2022?

THERE ARE 2 MAJOR CHANGES:

• FULL REVIEWS ONLY – Regardless of the homebuyer’s down payment, the Condominium must pass a Full Review during the qualification process.  All approval criteria must be met, no exceptions granted.
• BUDGET RESERVE STUDIES NOT ACCEPTED – In the past, if a Condo was operating with a budget of less than the requirement of 10%, an independent Study of the Budget Reserves that demonstrates that Condo’s operating budget of less than 10% is not a detriment to the overall community, and this could be supplied for consideration.  This is no longer accepted under the new rules.  If the Condo fails to meet the 10% minimum standard, then it is not eligible for Conventional financing. No exceptions granted.   

HOW DOES THIS AFFECT YOUR TRANSACTION?

The new changes only apply to Condominiums.  If you’re trying to finance a Condominium, the Condominium must now pass the Full Review Process, regardless of the buyer’s down payment or COMBO Loan/HELOC financing. 

It could potentially increase buyer costs, since the cost to review the Condo went up dramatically for both the Condominium and the lender.

It could also lead to more loan denials, even if the applicant is extremely well-qualified.  Remember, both the applicant AND the Condominium must be approved during the process.   

MORTGAGE ALTERNATIVES OFFERING CONDO LIMITED REVIEWS

If you’re buying a Condotel, or you’re buying a Condominium that isn’t passing the Full Review, we may be able to help.  

We have several great loan program options that still offer the limited review, including:

• Private Client Portfolio Program
• Flex Mortgage Program
• Bank Statement Loan for Self-employed business owners
• 1099 Income Program for Independent contractors. 

Remember Conventional loans are great—and yes, we do offer Conventional loans, too!  But they are FAR FROM your only option. There are plenty of great options available and we can help you determine which is the best solution for you. 

If you’re buying a Condominium or Condotel here in the Sunshine State, we’d love the opportunity to assist you, and let you buy your next Condominium with confidence!  Give us a call today or CONTACT US HERE.

Yours in successful homeownership,

Derek Bissen
Loan Originator
NMLS#365627
Unconventional Lending Program Director

​About the Author: 

Derek Bissen is a licensed Mortgage Loan Originator with over 25 years of experience in the industry. Derek is a self-employed lending expert who is known for his ability to work with borrowers who have substantial wealth and non-traditional lending needs. He is a creative loan structurer and specializes in portfolio lending, asset-based lending, bank statement lending, as well as traditional loans such as Conventional, FHA, VA, and first-time homebuyers.

Derek's expertise in the mortgage industry is unparalleled. He is a trusted advisor to his clients, providing them with customized loan solutions that meet their unique financial goals and needs. His vast experience and knowledge make him a valuable asset to anyone looking to purchase a home or refinance their existing mortgage.

As a highly-experienced loan originator and author, Derek is committed to sharing his knowledge with others. He regularly provides valuable insights and advice to readers looking to navigate the complex world of mortgage lending. His articles are informative, engaging, and backed by years of hands-on experience.

With his wealth of knowledge and dedication to his clients, he is the go-to source for all your mortgage lending needs. If you're looking for a reliable and trustworthy mortgage expert, contact Derek today to learn more about how he can help you achieve your financial goals.