Stumbling Blocks to Condo Purchase

Today's buyers market is very populated with either investors or first time home buyers. The two groups are bidding each other out in some transactions, especially in buying distressed properties, i.e. foreclosure.

Here are two big stumbling blocks to condo purchase:

1. Down-payment.

Most investors got an advantage in terms of funding. Often times, they come in with cash. So, they will have no problem with down-payment. However, on the downside for investors, they are not really 'welcome' in condo developments that have already higher ratios of investor to owner-occupied.

Solution: if you live and work in Virginia, VHDA can help you 'bridge' that. (if your finances fall within their limits).

2. Financing.

Banks are reluctant to lend to condo borrowers since foreclosure and short-sales tend to be concentrated in the lower priced homes. Unless condominium building is FHA-approved, which requires only a minimum 3.5% down-payment. It will be a big challenge for first-time buyers, if condo is not on the approved list. Sometime your lender can do on the spot loan, but, that is kinda up in the air. 

A write-up from Lisa Fowler with GMU Center for Regional Analysis:

It has become increasingly difficult for condominium buyers to find financing. Since foreclosure rates nationally have been higher for condominiums, lenders have been more hesitant to lend. Also, Fannie Mae and Freddie Mac have been more cautious about insuring loans made to potential condominium buyers. Compounding that, Fannie Mae now requires up to 30 percent down to avoid an interest rate surcharge on a loan for a condominium, and it will only insure loans to people buying new condominiums in projects where at least 70 percent of the units are sold or under contract to owners.

The FHA, which is one of the only alternatives for buyers without a 20 percent down payment, will provide loans only to condominium buyers purchasing a home in an FHA-approved condominium project. (emphasis added)

The 70/30 ratio is a big, big challenge for new condo projects unless they can get FHA to approved their projects. Velocity condo in DC told reservation holders, who are using either VA or FHA, "..to ante up their DP to 20% for it's extremely difficult to find a mortgage lender until building is 51% sold." (building is less than half sold).

Resale condos might not have problem with the 70/30 ratio, though it might have another challenge, which is the investor to owner ratio...

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