Caller…..”A yeah, I am interested in a mortgage for a condo”
Company….”Great, where are you calling from?”
Originator….”Perfect….we are licensed in Pennsylvania”
Caller…”OK, where are you?”
Originator….”Kansas. But, we do lots of loans all over the country.”
Caller…”Have you done any loans in Philadelphia?”
Originator….”Not personally. But the mortgage process is pretty much the same no matter where you are. ”
Caller…”Alright. I am looking for a $250,000 loan. I’m thinking about putting down 30%. Can you give me an idea of the rate?”
Originator….”As long as your credit is above blah blah, your rate is blah, blah, blah”
Caller…”Wow, that’s an awesome rate. Do you think we can close in two weeks”.
Originator….”Ohh sure. Not an issue.”
And…prepare to punch yourself in the face.
Almost everyone who has been active in the mortgage market over the past decade has heard horror stories of botched financing courtesy of working with mortgage lenders and brokers from far outside of their communities. Today, selecting a mortgage professional you’ve met online is not that big of a deal anymore. Technology has overcome many hurdles and there are plenty of great companies who have streamlined the origination process. BUT, and it’s a big but…if you are looking to buy a home which is not a “vanilla” property, your originator’s past experience and knowledge of the market may determine whether or not you want to refer them to friends or back over them with your unpacked moving truck.
Condo loans certainly fits that description and especially when it comes to high-rise units and properties where not all phases of the building have been completed. There are multiple underwriting guidelines which can determine if a unit is considered “non warrantable”. Non warrantable condos are not eligible to be sold to Fannie Mae and Freddie Mac due to a presumed higher risk for default. Thus, the loans have to be placed with lenders who do accept these types of properties in their portfolio. One of the most important items you’ll need to get completed is a condo questionnaire. This typically is a 1 to 2 page form that is sent from your mortgage company to the condo’s management company. This step will help the mortgage company in determining whether the condo will meet their lenders’ guidelines.
Back to the aforementioned conversation. The originator did a couple of things that should raise a red flag. First, they did not ask any questions about the condo which could immediately help them determine if they had a matching loan program. Most experienced loan officers will rattle off some questions immediately such as, “Are all of the units complete? Are most units owner occupied? Is there an active homeowners association? Are there commercial spaces in the development?” The list of Fannie Mae and Freddie Mac requirements is lengthy. That’s why it might be worth your while to work with a mortgage professional who has already financed a property in the development. They have already walked down the path.
Ask your real estate professional for a list of three mortgage professionals that they recommend. Try to find ones from different companies and who all have experience with financing condos in your area. And perhaps most importantly, be sure to give yourself enough time to gather the necessary documentation from the management company. 50% of the time the mortgage company gets a half completed condo questionnaire back two weeks after they sent it in. Of course this does not work and it has to go back to the management company who kicks and screams that the “Joe’s Perfect Mortgage Company” down the street does not ask for any of this stuff. Does it sound like I’ve lived it? Almost every mortgage professional past and present has. Work with your real estate agent and the seller’s agent to help facilitate the paperwork from the management company. You’ll also want to make sure that the appraisal happens quickly in case it produces information that makes the unit not fit the mortgage program that your originator had selected for you. There are options for non-warrantable condos. Just be sure to give yourself enough time to shift gears if you need to.
About the author:
Nat Criss is a home financing expert based in Wilmington, North Carolina. He is the CEO ForTheBestRate.com, a consumer directed website focusing on mortgage rates, insurance, and personal finance.