FANNIE AND FREDDIE ARE ABOUT TO MAKE IT MUCH TOUGHER TO GET A LOAN TO BUY A CONDO.

FANNIE AND FREDDIE ARE ABOUT TO MAKE IT MUCH TOUGHER TO GET A LOAN TO BUY A CONDO.

By Eric Glazer, Esq

IT MAY BECOME IMPOSSIBLE TO GET A NEW MORTGAGE IN MANY CONDOS

As if condos didn’t have enough problems, Fannie Mae and Freddie Mac have just come out with new guidelines that condos must follow.  Fannie Mae and Freddie Mac are government-sponsored agencies that purchase large quantities of home loans to keep money circulating throughout the home mortgage economy.   They won’t purchase these loans any longer unless:

Delinquent assessments for Established Condominium Projects

No more than 15% of the total number of units in a project are 60 or more days delinquent in the payment of their HOA assessments.

The Condo Must Have a Reserve Study

The reserve study must comply with the following requirements:

1. The reserve study generally must include:

• An inventory of major components of the project
• Financial analysis and evaluation of current reserve fund adequacy, and
• Proposed annual reserve funding plan

2. A reserve study’s financial analysis must validate that the project has appropriately allocated the recommended reserve funds to provide the Condominium Project with sufficient financial protection comparable to Freddie Mac’s standard budget requirements for replacement reserves
3. The reserve study’s annual reserve funding plan, which details total costs identified for replacement components, must meet or exceed the study’s recommendation and conclusion
4. The most current reserve study (or update) must be dated within 36 months of the Seller’s determination that a Condominium Project is eligible
5. The reserve study must be prepared by an independent expert skilled in performing such studies (such as a reserve study professional, a construction engineer, a certified public accountant who specializes in reserve studies or any professional with demonstrated experience and knowledge in completing reserve studies)
6. The reserve study must meet or exceed requirements set forth in any applicable state statutes
7. The reserve study must comment favorably on the project’s age, estimated remaining life, structural integrity and the replacement of major components

If the Seller relies on a reserve study that meets the requirements of this section, the project’s budget must contain appropriate allocations to support the costs identified in the study.