Maybe Credit Isn't Always The Issue

Setting off to purchase a new home is usually a daunting task and it’s mostly due to the learning curve. Chances are a buyer hasn’t dealt with the process in some time and quite often their last real estate purchase was made in another state. How they did it back home is usually not how it is customarily done in Southwest Florida.

Besides the local customs that are different many buyers may be embarking on a condominium purchase and they have many questions and concerns. The process of buying a condominium is a little more involved than purchasing a single family home. It should be more involved. A buyer is becoming part of a community and will have to live closely with others, share common areas and count on others to pay their quarterly assessments for the upkeep of the association.

The upkeep and management of the association, the common elements and the cash reserves are crucial. After the sales contract is executed buyers of resale condominiums have three days to review condominium documents, budgets, frequently asked questions and rules and regulations. Basically, buyers get to verify the quarterly assessment, look for any recent or upcoming special assessment and see where the money is spent that is collected in the quarterly fees.

Before the downturn in the real estate market a simple review was enough. If the budget looked good and their dog met the pet weight restrictions the buyers moved ahead with the purchase. Buyers and sellers never thought twice about buying or selling a condominium and wondering how it would get financed.

There are some fantastic deals on condominiums in Lee and Collier Counties. Everyone probably knows of a complex or section within a community with mess lot of condos for sale; short sales and even a few bank owned units. They’re usually very attractive to investors and folks who had once been priced out of the market and can now back get in for pennies on the dollar.

There’s a little know wrinkle that’s starting to show itself in condo financing. Whether you’re an owner in a complex with growing pains or you’ve flown down special just to buy a great deal, if you’re financing a purchase in a high risk area you run the possibility of being denied a mortgage. Yes, even with a ready, willing, qualified buyer a mortgage can be turned down in underwriting.

Have you ever heard of a condo questionnaire? Not many people have because it’s just part of the process and it is quietly done behind the scenes. It’s not subterfuge, its just one of the many facets of a transaction that usually goes unnoticed.

A lender sends a condo questionnaire to the condominium management company as part of the underwriting process. The questionnaire asks dozens of questions about the association, the stability of the finances, insurance and more. A good many of the associations charge as much as 150 bucks for one of these questionnaires, too.

There are a couple of crucial questions on the condo questionnaire that are now a fly in the ointment.

  • What are the total number of units that are occupied as primary or second homes and what are the total number of units that are tenant occupied?
  • Provide the total number of unit owners that are 30 delinquent on unit dues and/or special assessments.

Current underwriting conditions require 60% or more of the units to be primary or second homes. That only leaves a maximum 40% of units or less permitted to be investor owned or tenant occupied to still meet the guidelines.

A condominium association that is inundated with tenants and/or foreclosures runs the risk of not qualifying for a mortgage. Yes, foreclosures count, too. Those foreclosures are considered investment properties since they are no longer a primary residence or second home.

Anyone that thought special assessments to make up the difference for delinquent owners was merely a one time inconvenience or just part of having “growing pains” needs to know that it is becoming so much more. Typical underwriting guidelines state that if 15% of owners are in default, that mortgage is a no go.

Who would have thought that after researching and looking for a home, qualifying for a mortgage, paying for the inspections, appraising for purchase price and making every deadline the transaction could flat line because of the condo questionnaire?

If you’re a seller of real estate in a troubled area you need to pay attention to what is going on in your community. The 2009 budgets should be in your clutches or on the way by the end of this month. You might want to scrutinize the budget and last set of association meeting minutes to see where you stand, especially if you are trying to sell.

Marketing a unit and finding a buyer is only part of the struggle for anxious condo sellers. It would be a shame to find out the hard way, after having your condo under contract for weeks, that the mortgage won’t fund due to the occupancy ratios or delinquencies.

Condo buyers who are preparing to pick up one of the steals and deals in a community chock full of investors and tenants may want to do a little homework and ask a few questions prior to contract, especially if they’re counting on getting a mortgage to pay for the purchase. After all, that great deal isn’t a great deal if you’ve invested time and travel expenses to find it and can’t get the financing that you’re counting on to pay for it.









Real Life in Bonita Springs is a project by Chris Griffith dedicated to writing useful blog posts for consumers about the Bonita Springs, Florida area.  Find out what it is really like to live in Bonita Springs, Florida by reading about our fair city. You’ll get the latest in local real estate information, Bonita Springs real estate market reports and a little bit of humor.  If you have topic ideas, feel free to request a story about the idea, after all, this site is just for you.

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