Real Estate Corner: Why a lender might refuse financing for a condominium
Question: My fiancé and I recently tried to purchase a condominium and were refused financing by the lender who said that the property “didn’t meet secondary market guidelines.” It was a beautiful property and appraised for even more than we had agreed to pay for it. Can you explain and offer some advice on what we can do?
Answer: Most mortgage lenders sell their loans into what is commonly known as the “secondary market,” and these days that is primarily Fannie Mae, (Federal National Mortgage Association) or Freddie Mac (Federal Home Loan Mortgage Corp).
Depending on the loan program you had applied for, any one of several issues involving the operation, management and resources of the condominium association could be the reason for the problem. It has nothing to do with the property itself, its physical appearance or condition or what it appraised for.
Typically, during the course of processing the loan application, the lender will request information directly from the condominium association, or its management company, in the form of a fairly standard questionnaire. Some of the things that most commonly raise problems are:
• The number of units owned by any one individual, which can allow undue influence over the rest of the association by a single party;
• Fifteen percent or more of the unit owners running 30 days or more in arrears on the payment of their monthly or quarterly association fees. That can indicate a development that may be headed for financial trouble.
• Any litigation pending against the association which can indicate a potential financial problem for the association which, in turn, could impact its ability to pay for services and remain solvent.
• Another major problem seen most often in coastal or resort areas is a policy that allows for units in the development to be rented on a short-term basis multiple times during the course of the year. This has a negative impact on owners who live at the property due to the transient nature of a development where renters are constantly coming and going, similar to a hotel.
The lender will also request a copy of the condominium’s operating budget and financials to evaluate if monthly or quarterly fees are adequate to keep the development operating as it should. The lender will also review the master insurance that covers the buildings and structural amenities for hazards such as fire, leaks from broken pipes, etc., as well as liability for accidents and damage occurring on the commonly-owned property.
You should enlist the help of your Realtor to find out exactly what the problem or problems may be at this development. Oftentimes it can be resolved with further investigation and working with the property management or association.
Something like adding a rider to an existing insurance policy or getting an update to see if the unit owners are now more current on their fees could make all the difference.
Barbara Cunningham is a member of the Greater Manchester/Nashua Board of Realtors. This information has been provided by the Greater Manchester/Nashua Board of Realtors in conjunction with the New Hampshire Union Leader’s Advertising Department. Readers with questions about the content, or who wish to pose a question for a column, can contact the realty board at 166 S. River Road, Bedford, N.H. 03110 or email: firstname.lastname@example.org.