This is one outlet's own report from CNBC — the article as it was filed.
AIPROPX ReportCNBC · 3h ago
Buying a condo with a mortgage may soon get more complicated. Here's why
Prospective homebuyers eyeing a condominium may soon discover that mortgage lenders are as interested in the condo building as they are in the buyer.
New condo-lending policies taking effect on Aug. 3 from Fannie Mae and Freddie Mac — government-sponsored enterprises that purchase qualifying mortgages on the secondary market — mean that some purchases could involve greater scrutiny by lenders. While lenders already review condo associations in many cases, the new policies require a closer look at the association's finances, reserve funding and building maintenance for some transactions.
The changes are intended to better identify condo buildings with financial or structural problems and reduce the risk that owners face unexpected special assessments or higher association dues, according to a March 18 letter to lenders from Fannie Mae.
However, some trade groups and loan experts say the change is likely to cause delays in mortgage approvals, and in some cases, lead to mortgage denials if a condo building fails to meet the new standards.
"It will make the [application] process take much longer and will result in a lot of disqualifying applications," said Max Slyusarchuk, CEO of AD Mortgage in Fort Lauderdale, Florida. The mortgage wholesaler sent a letter dated July 16 to the Federal Housing Finance Agency, which oversees Fannie and Freddie, urging the agency to modify or postpone the changes.
Buyers "should expect it to be way more difficult to buy a condominium," Slyusarchuk said.
FHFA did not respond to an email seeking comment.
Fannie and Freddie buy home loans from lenders and package them into mortgage-backed securities for investors . If lenders want to sell mortgages to Fannie or Freddie — and most do because it frees up capital to do more lending — the loans must meet certain underwriting standards, whether for a condo or other type of home.
Buying a condo is generally less expensive than purchasing a single-family home. The median price for a condo or co-op was $380,000 in June , up 1.6% from a year earlier, according to the National Association of Realtors. That compares with a median price of $446,400 for a single-family home.
As of 2023, there were about 8.6 million condominium units in the U.S. overall, according to the Census Bureau's American Housing Survey .
Since the partial collapse of the 12-story Champlain Towers South condo building in Surfside, Florida, on June 24, 2021, which killed 98 people, lawmakers and policymakers have continued to tighten standards affecting condo purchases and financing.
The National Institute of Standards and Technology, a government agency within the Commerce Department charged with investigating major building failures, released a report on June 22 concluding that the 40-year-old building had design and construction flaws from the time it was built, as well as decades of deterioration that contributed to the collapse. Published reports in the aftermath of the collapse showed that the condo association had delayed major repair work as the cost and scope of the project were debated.
The disaster prompted the Florida state legislature to enact condo reforms , including special inspections for older buildings, as well as requirements to address identified structural problems and adequately fund reserves for future repairs.
Nationally, Fannie Mae and Freddie Mac tightened condo underwriting in the months after the Surfside collapse by making projects with significant deferred maintenance, critical repairs or certain special assessments ineligible for mortgages they would purchase or guarantee. The changes, initially implemented as temporary measures, were largely made permanent in 2023.
This year, in March, Fannie and Freddie unveiled additional changes. Some, such as allowing condo associations more flexibility in how they insure roofs, are intended to help reduce costs and expand access to insurance coverage for associations.
Others are designed to reduce risk for homebuyers and lenders. Beginning Aug. 3, one of those changes eliminates the limited, or streamlined, review that's been available for certain condo buildings.
Instead, unless a project qualifies for a waiver — which can include some smaller condominium projects — many transactions will require a full review. That means lenders will do a more comprehensive assessment of the condo association's finances, reserves, insurance coverage and the building's condition before the mortgage can qualify for sale to Fannie or Freddie.
Roughly 40% of condominium purchases involving a mortgage have been made using a limited review and could now require a full review, a change that is likely to lengthen the loan approval process, said Dawn Bauman, CEO of the Community Associations Institute, which represents condominium, homeowners association and housing cooperative communities.
"That is something that will require additional manual human engagement from almost all parties involved, certainly for the mortgage lender and community association," Bauman said.
A spokesperson for the Mortgage Bankers Association said whether the mortgage application process is held up will depend on the project, the availability of required documentation and how readily this documentation can be provided.
However, once a lender completes a full review, "the project is in the [Fannie and Freddie] systems as approved," the MBA spokesperson said. "It is not needed for every loan."
In other words, once a condo project has passed a full review, lenders generally won't have to repeat it for every subsequent mortgage.
At the same time, if a condominium project fails to meet Fannie Mae's or Freddie Mac's underwriting standards during a full review, the lender may deny the buyer a mortgage, Bauman said.
"I think we'll see some buildings that qualified under limited review become ineligible under full review because there may be a nuance they aren't complying with," Bauman said. "But it won't mean the...
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