Tightening Credit Environment Changes Rules for Condo Review

Your existing condominium is about to become more desirable from a lending standpoint than new construction or condo conversions.  

Why?  

Fannie Mae and Freddie Mac are the major players that make up the secondary market for investors looking to buy your home loan after the closing.   This provides liquidity for mortgage banks and other home mortgage lenders.   Fannie and Freddie set the guidelines as to what makes a salable loan and what does not.  Automated underwriting systems are employed by loan originators to determine what points need to be reviewed and conditioned prior to approving a loan and preparing it for the secondary market.   Guidelines are about to get tougher and in turn, limited review standards are about to be reduced or eliminated.  

It is anticipated that factors such as occupancy and substantial down payment are about to make a world of difference in terms of what documents will be required by the investor.  

New condo conversions and new construction condos will likely require review of the following: a condo questionnaire, bylaws, adequate insurance coverage, flood certification, and full appraisal.   Conversions will probably also require an engineer™s report.   Extra documents equate to extra time and cost in building a case for a loan approval and will be factored into the interest rate.  

Skittish investors will also want an accurate sales/closed unit count within a building.   This may not fare well for smaller, vacant condo buildings found throughout
Chicago™s neighborhoods.  

This is not to detract you from buying a new condo.    Chicago has always had a strong market for this type of home and continues to be a safe, desirable product.   First time buyers usually start with a condo.  Historically, all condominiums are perceived to be riskier than traditional free standing homes.  Keep this is mind when working with your Realtor ® and be sure they are aware of these tighter lending guidelines.   Developers and condo boards need to be prepared and ready for the onslaught of requests banks are going to make on behalf of their investors.   Ask for documentation early and often well before the closing date.   Remind them of your time frame to avoid unnecessary delays.   This is just part of the return to quality for lenders employing sound lending practices.  

© 2008 Michael S. Amers

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