Cracking the Condo Code: What Lenders Look For (Inside Scoop!)

We’ve talked about the general condo financing landscape, but let’s dive deeper into what lenders need to get your client a loan on a condo. Think of this as a behind-the-scenes look at the condo approval process. Remember, detached condos are different and only need master insurance review for sufficiency.

The Lender’s Deep Dive: Beyond the Basics

Fannie Mae has a list of condos on their naughty list! I don’t think they call it naughty, but I do! Outside of that list, there is a good percentage of condos that still may not be warrantable, but Fannie doesn’t know about them yet! We generally uncover the issues during the loan process, and we cannot give you definite answers until we have everything.

Key Documents We Require (and Why):

• HOA Certification Form: It’s a comprehensive questionnaire that provides crucial insights into the condo association’s financial health, insurance coverage, litigation status, and more. It will tell us whether one person owns more than 10% of the units, if 15% of the people are delinquent, what the owner occupancy level is in the complex, etc. An HOA Cert is usually a cost to the buyer; the management company doesn’t love doing these. Yes, paying for one may be worth it for your seller, but most will decline that opportunity.
• Financial Statements (Budget & Balance Sheet): We meticulously analyze these documents to assess the association’s financial stability. We’re looking for healthy reserves, 10% being put into reserves monthly.
• Condo Association Documents (CC&Rs, Bylaws, etc.): These documents outline the rules and regulations governing the condo community. They can reveal potential issues related to assessments, restrictions, and governance. One of the major factors here is senior condos that a person under 55 is buying to live there. Some of those can be restrictive. Another issue is that some originally low-income condos cannot be FHA-approved.

Red Flags That Raise Our Eyebrows:

• Pending Litigation: Lawsuits involving the condo association are a red flag. We assess the nature of the litigation and its potential financial impact. Even if the association is confident, legal battles are expensive and can create uncertainty.
• Construction Defects/Deferred Maintenance: Visible signs of disrepair or known construction defects are a major concern. They can lead to costly repairs and even jeopardize the safety of residents.
• Inadequate Insurance: We verify that the association’s coverage meets our requirements. Gaps in coverage can expose unit owners to significant financial risk.
• HOA Management Issues: Is the association professionally managed? A poorly managed association can lead to financial mismanagement, neglected maintenance, and resident disputes.

Our “Naughty List”: Local Knowledge Matters

Our “naughty list” is a local database of condo projects with known issues. These are projects we’ve encountered during past transactions that raised red flags. They might involve anything from ongoing litigation to structural problems or financial instability. While some of these projects may eventually appear on Fannie Mae’s list, we often identify problems before they become widespread knowledge.

The Takeaway for Real Estate Agents:

• Know Your Local Market: Be aware of non-warrantable condo projects in your area. Your client needs to hear that from you and not their friend or worse when they are in escrow!
• Partner with Experienced Lenders: Work with lenders who specialize in condo financing. They can help you navigate the approval process’s complexities, identify potential pitfalls, and have solutions if there are issues!

By understanding the lender’s perspective and doing your due diligence, you can help your clients make informed decisions and avoid the headaches of condo financing gone wrong.

Please let me know if you have any questions or if a client needs my guidance. I’m just a call, text, or email away.

Cell: 661-714-6258

TEXT: 661-714-6258

Office: 661-260-2970 ext. 2222

Direct Line: 661-291-2222

 Email: Mike@AugustaFinancial.com

2025 started, so lets make things happen. Please let me know if you would like to go over my latest marketing ideas!

But wait, there’s more…

Interest Rates

It was a rough day yesterday, but we got about 75% of our loss back today! Rates are still on the higher side vs. what we want, but I am going to tell you this much! This is where rates are, and they may be at these levels for a while!

• We offer 12-day escrows for pre-approved buyers - Conventional/FHA/Jumbo/Bridge loans.
• We provide loans in all states, so call me with anything you need.
• Government Loans (FHA/VA/USDA) are in the 5’s and 6s.
• Conventional loans up to $806,500 are in the 6s.
• High Balance Loans from $806,501 to $1,209,750 are also in the 6’s and low 7’s.
• Jumbo loans above $1,209,750 are in the 6’s and low 7’s.
• Bank statement loans are available with 10% down again, with larger down payments in the 7’s.
• Profit and Loss Statement loans require 20% down - no bank statements needed, only a profit and loss statement!
• 0 down loans are available in the high 6s, with a minimum credit score of 620, up to $1,300,000.
• Private Money lenders offer Hard Money Loans with 35% down.
• No Ratio Loans require 30% down.
• DSCR (Debt Service Coverage Ratio) loans are available with as little as 15% down.
• Bridge Loans typically have an interest rate of 7.99% with limited fees, helping you get where you need to go!
• 3/2/1 Buydowns, 2/1 Buydowns, and 1/0 Buydowns are available at great starting rates!

Please note that interest rates are subject to change without notice, and the information above reflects LA County Loan Limits.

**Good News for Condos:** Diamond Head – YAY! Insurance is now correct!

**Bad News for Condos:** Nothing new!

The full state of California naughty list will be added to my website this week! Over 700 condos that are naughty per Fannie and Freddie.  

For all other issues involving condos, please check MikeMeena.com. I will post updates here, but all the information on the naughty list is available on my website. Just go there and click about to find our most updated list.

Let me know if you hear anything new about condos or townhouses.

I am NEVER TOO BUSY if you need anything.

Cell: 661-714-6258

TEXT: 661-714-6258

Office: 661-260-2970 ext. 2222

Direct Line: 661-291-2222

 Email: Mike@AugustaFinancial.com

Have a great day, and an even better tomorrow! Please call me when you have a client who needs to borrow!