Loan Officer Training 09/11/2024 - How to Structure Limited-Review Condo Loans

Ready to tackle the intricacies of condo financing? In this episode of Loan Officer Training, we’re diving into the essential techniques for structuring Limited-Review Condo Loans. These loans offer a streamlined approach to condo financing, and mastering their structure can set you apart in the competitive lending market.

We’ll guide you through the process of assessing condo projects, meeting lender requirements, and managing risk effectively. Discover how to navigate the unique aspects of Limited-Review Condo Loans, from understanding eligibility criteria to ensuring compliance with all regulations.

Whether you’re new to condo loans or looking to enhance your skills, this episode provides valuable insights to help you excel.

Don’t miss out—join us and learn how to structure Limited-Review Condo Loans like a pro!

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The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation! 

Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!

Our team of over 350 licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as access thousands of mortgage programs using Alternative Income Documentation such as Bank Statement Mortgages, P&L Mortgages, Asset Based Mortgage Programs, No Ratio CDFI Loan Programs, DSCR Investor Mortgages, Commerc

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Catch all the episodes of the Loan Officer Training Podcast at https://themortgagecalculator.com/Page/Loan-Officer-Training-Series-Podcast

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The Mortgage Calculator is a licensed Mortgage Lender (NMLS #2377459) that specializes in using technology to enable borrowers to access Conventional, FHA, VA, and USDA Programs, as well as over 5,000 Non-QM mortgage loan programs using alternative income documentation!

Using The Mortgage Calculator proprietary technology, borrowers can instantly price and quote thousands of mortgage loan programs in just a few clicks. The Mortgage Calculator technology also enables borrowers to instantly complete a full loan application and upload documents to our AI powered software to get qualified in just minutes!

Our team of over 350 licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as access...

Transcript

Restream recording Sep 11, 2024 • 04:03:24 PM: 0:13

So welcome everyone. My name is Kyle Hiersche. I'm the COO of the mortgage calculator joined here by our president, Nick Hiersche and our CSO. Jose Gonzalez, we are a lender that specializes in non QM loans. And what we do every Tuesday, Wednesday, and Thursday at 12 PM Eastern is a loan officer training topic. And today's topic is going to be how to structure limited review condo loans. So definitely something very specific and some great, uh, waters that Jose can help us navigate here. Jose, are you frozen? Looks like you're frozen. Uh oh. Oh yeah, he fully dropped off now. So we'll give Jose just a moment to, uh, come back in here. But again, definitely something, uh, to know, especially, uh, for places like Florida, right, that have a lot of, uh, condos. So definitely important as well. Let's see here. Is Jose jumping back on? Don't see him yet. All right. Well, Nick, while we wait on Jose, do you want to talk? A little bit about, I guess, kind of preface what he's going to be talking about here today. The problem that we're going to be trying to solve here, I guess, essentially, what is what is limited review? And we're talking about this. Well, that's what the presentation is going to be on, but a limited review condo is going to be different in. Uh, different cases, so, uh, there's a lot of different. Variations here that he's going to have to, uh, uh, present Florida definitely has their own laws on, uh, condos. And so Florida is always different than every state. And then every loan program is also different. And then also the, uh, occupancy type is also different. So limited review, uh, is very specific and has to do with the exact program, the exact occupancy, and even the exact state as every state is treated differently. Uh, even Florida within the state is treated differently as well. All right, still no Jose here. Do you see him jumping in on the back end? Nope, I don't see him yet. All right, good morning though to everybody there in the chat. See lots of comments coming in definitely. Appreciate it. I do want to, I guess I'll take this time to remind everybody about our conference that we do. Uh, anybody out there tuning in that is in real estate, especially members of our team, we do our conference every year in Miami, December 13th to the 15th. It's called real estate live real estate weekend and it's a great time in Miami. Lots of. Uh, panels, mixers, and then we do a VIP yacht party with free food and drinks and, uh, all kinds of cool stuff. So, definitely check that out. The website for more details is realestateweekendmiami. com. We've had, uh, awesome speakers like, uh, Kevin O'Leary from Shark Tank. Uh, we've had Marcus Limones from the profit. So I know some people tuning in, uh, have been to previous years. I see some people in the chat there that have came before and it's definitely a great time. The team members can let you know, there's a lot of realtors, loan officers, uh, people from different parts of the industry. I just got a message here from Jose saying he's almost back. So I guess we'll give him just another minute here to tune in. I apologize for the. Uh, technical difficulties here, but, uh, this, this, uh, streaming program, the streams on all the platforms is definitely a little, uh, Robust and can present some problems there. So it looks like Jose's here. Jose, maybe, uh, I'm not sure exactly what happened, but you might want to turn your camera off just in case, uh, that might be eating up too much of your computer there. So why don't you turn your camera off? All right, um, I'm not really sure what it was, you know, I was, uh, turning, uh, I, I was just with the presentation, but let me go ahead and do that. And then let me show my screen. All right. Yeah, let's do that. Just to. Make sure that that doesn't happen again here. Alright, let's see, are you able to share your screen, Ozer? Uh, yeah, I'm just getting the finishing and getting the slideshow up so that I can, I guess since everything was restarting, it was taking, I'm up and ready to go. So what I wanted to, uh, today's training, um, definitely hits home for, uh, the MLOs in Florida. Let me see, I think I can get it for the MLOs in Florida, uh, because Florida is treated differently, uh, than the other 49 states, um, regarding, um, limit, regarding limited review condos and just regarding condos in general, uh, the Florida condo market tends to be a little peaky at times, uh, so. Those of you with Florida license, as you know, Florida is, uh, one of the top, uh, activities, uh, real estate states in the country. Uh, so, um, and we definitely have a lot of them in Florida. So this point will definitely hit home for those of you. Uh, I mean, we originated in all 50 states. So for, uh, in the other 49 states, as you'll see in the presentation. Um, not as impactful, uh, for the primary homeowners, but let's get right into what do we mean by a limited review condo, right? Because some of you who don't originate a lot of condos. May never come across this, but definitely in the condo heavy states like Florida, very important. Limited Review Condo is a streamlined process, which is, which is available now. This is something I want you to understand for both conventional and And non QM voters, a lot of times we think of limited review, uh, as a Fannie and Freddie option, but, um, a lot of the non QM investors have, um, incorporated the more restrictive Florida Fannie Mae Guidelines into their limited review, uh, condo process. So what exactly is a limited review? Well, it's a, it is a streamlined process, which omits association budget and balance sheet review. Super important there. That's the number one culprit of why a condo, uh, would not be able to be financed under a regular. Review option. So, uh, that's because they may have a deficiency in the, uh, reserve account. That's the big one. They need to be collecting at least 10 percent of the annual, uh, budget, operating budget. into a separate reserve. So it's really easy when you do get a condo loan, right, to reach out to all of the parties of the transaction, reach out to the buyer's agent and the seller's agent and see if anyone can provide a copy of the most recent budget. This is assuming it's a purchase, obviously. If it's a refi, it's a purchase. You'd be reaching out to your borrower and asking them if they received the yearly budget. The owners do receive it from the association and then they could provide the budget and you could review it and you could see if there's actually any money being collected and put into a reserve account. And if it is, and it's not at least 10 percent of the annual operating budget, then you're going to have a problem with a full review and then you're going to have to go for a limited review. Um, Review of the percentage of investor units is another, um, situation with, uh, buildings that may be, you know, have a high percentage of investors. The number I believe is 50%. So, uh, if it's more than 50 percent of the units are investor units, that's going to have an issue with a full review that would have to go. And going back a minute to the budget, Obviously, reserve is one of the issues, but also just in general, I mean, if there's any kind of a deficiency there, anything that is noted in the budget that's not favorable, um, the loan could get shut down because in a condo, the health of the association is an integral component to the funding. maintaining the value of the property, right? If the association, uh, goes into a deficit situation, they're going to have to hit units with special assessments. And then more than 15 percent of the unit owners are, uh, delinquent in their payment. That's a big one there. So, what will a limited condo, um, verify? What will the limited condo review verify? Well, no hotel services or mandatory rental pool or front desk. Right, so, we know there's condos that may be operated as a short term rental. So that's an individual component of the unit. Uh, but as far as the building and the association, uh, that's one of the things that the building cannot have. Frank Desk. You know, to receive guests, right? That's, that's gonna fail the, um, the loan for this type of financing. No single entity owns more than 10 percent of the unit is something else. They will ask, does the commercial space, you know, they're going to ask what percentage of the building is commercial space. It cannot exceed 25 percent if there's any pending litigation. Now, if there is, then. You would ask for some documentation and then, uh, the condo review underwriters can review and see if, uh, there may be reserves to cover, uh, the contingency, uh, the contingent liability should they lose or insurance to cover and money and reserve for the out of pocket hazard and flood assurance is always going to be applicable, or should I say going to be reviewed flood assurance as applicable if it's in a flood zone. FEMA just redid their flood plain maps, July 31st of this year, so some properties that were not in a flood zone are now in a flood zone. Be on the lookout for that. Now, also, limited condo review will verify. Now this is going to depend, one, I think, caveat I wanted to note here, limited condo review forms are, um, requirements are going to, um, depend on the investor, uh, that the loan is being sold to. And if there are any overlays, that's if we're talking about a conventional loan, Fannie or Freddie. And then on the non QM side, obviously it's going to depend on the guidelines because some may ask, are, you know, What is the percentage of units, uh, 60 days or more past due on the, uh, assessment payment, you know, the monthly association fee seems like the magic number is 15%. So if it's more than 15%. of the units are more than 60 days or more past due, it's going to fail. That's going to be a big issue. At that point, you're going to have to go financing for a non warrantable condo, right? Limited review condo loans, uh, resolve some of the issues that make a condo non warrantable, which is the issues we're covering right now. But if you, if you fail the limit, some of these limited condo review, uh, parameters, then. You would go to a non warrantable condo, non QM loan, specifically targeted, uh, for these issues. And then obviously there's going to be adjustments possibly in interest rate, cost, and, uh, loan to value. Um, so now let's, uh, go on. So just to be aware now, I did specify overlays that may cause differences and how it's reviewed and on the agency side, conventional and specific guideline requirements for the different investors. So, uh, As I was just stating, right, make sure that you use the correct investor specific limited condo review form, because that form, depending on whose guidelines or overlays are, are applicable is going to ask you for different talking, uh, different information. Some are very short. I'm not sure than others and ask hardly anything. So obviously when you're structuring your loan, if that's going to be an issue, that's one of the points that you would definitely want to take into consideration, right? Obviously, interest rate, cost of the rate, all those factors, but also if it's a condo, uh, what's the state of the health of the association, right? Financially and with their documentation and is that going to entail then, uh, customizing that loan or tailoring it. Uh, taking into consideration that, uh, possible deficiency there on the condo review that would require limited condo review. So, now here's where we break it down, like I was mentioning those, uh, that, uh, You know, doing the condo loans in Florida and those that are doing the condo transactions outside of Florida. There is a big difference in the transactions outside of Florida. Notice primary residents, 90 percent max LTV and CLTV, right? The CLTV would be if you added a HELOC, right? So, you may want to go 80 percent on the first to not have any mortgage insurance and a 10 percent HELOC, right? And there you're at your 90%. So either one loan or combo loan. Second home is 75 percent LTV and CLTV and investment is 75 percent LTV and CLTV. So those are more relaxed guidelines, uh, than Florida below for the limited review, uh, condo loan, because there we have primary residence 75 percent max on the first. And 90 percent CLT. That's where our, uh, combo, our HILA combo purchase loan comes into play. Where you go 75 percent LTV on the first, right? Normally that bar is going to have to come in right with 25 percent down or less. You then combine it with a heap with a heat lock for 15 percent and the borrower comes in with only 10 percent down. That's a super amazing transaction for Florida condos where frankly, uh, the majority of the condos do not have reserves, but that's going to change. There are some laws that are going to be changing that. So there's going to be a lot of special assessments to be on the lookout for that's going to affect people's qualifications. Second home notice. It's 70 percent max on the first 75 CLTV and investment. 70 percent max on the first 75 percent CLTV. So those are still pretty good numbers. Now, something that I definitely want you all to take into consideration is the scenarios under which. A condo review is not even wired, right? So there are some situations when they are eligible for what's referred to as a waiver of project review. And those would be a detached condo. I've actually financed those. It looks like a single family home, right? Has a yard. Even has fence around it, but it's, uh, it's a condo. The owner does not own the land, the owner does not own the structure, they own the inside from the walls in, just like with every other condo. There's an association that takes care of the exteriors, and there's an association fee paid. Those properties do not have to go through a project review. No, no condo questionnaire needed. A condo project that is two to four units, unless one of the owners owns more than one unit. That's a, that's a different situation there. Uh, units in a PUD project. Uh, and then here's one where, uh, this is really digging deep, but Fannie Mae to Fannie Mae limited cash out. Now, please be aware limited cash out is a terminology for. Rate and term, what you would consider a rate and term only taken up to? Uh, typically it's gonna be no more than, uh,$2,000. Uh, can go net of the cash of the refinance. So Fannie Mae to Fannie Mae Limited cash out refinance to a max of 80%. So if your LT. 80 percent on a rate and term and it's a fanny low refinancing into a fanny low. Guess what? You do not have to get a condo questionnaire at all, right? So do be aware. That's a good one because I know that that does happen in certain scenarios. So to recap here, what are the solutions that are offered by limited review condo loans. Well, breaking it down here, it permits financing properties normally not eligible for Fannie Mae Freddie Mac financing due to the issues that we've talked about, the financial issues of the association, including the most common attempt that they're not collecting at least 10 percent of the annual budget. Into a reserve reserve requirements. So if you were to be going full review and not limited review, because for example, you want to borrow a bar that wants to buy was 5 percent down or 3 percent down, right? That's what they really want to do. They figure condos are less expensive than a. detached single family home. They want that to be their first purchase. They want to come in with the minimum down payment, but that's only going to be possible with a full review condo loan. So do be aware. And if it's FHA, that's a whole different story. It has to be FHA approved, not just, you know, so you got to. That's a spot approval at best. So do be aware that, uh, that's the reason why you'd want to do a full review in the first place, but if it's not possible, then you have to be aware to advise your borrower. That they're going to have to come in with at least 10 percent down outside of Florida and 10 percent down in Florida. If you can come by, if you can originate the transaction as a HELOC combo loan, and there are additional requirements for the HELOC that may not be the same requirements as for the first loan, which is Inaudible. or L. P. Right. So do be aware of the challenges that may may face for the florida transactions that are going to be the combo. So That's the first one there. The second one is, do be aware, like I mentioned earlier, that non QM guidelines incorporate Fannie Mae's more restrictive Florida limited review guidelines of 75 percent LTV max. That's how they deal with, uh, limited review. They go to the more restrictive one, regardless of the state, doesn't matter what state it's in. That's what it's going to be. And the, uh, you know, the 70%, uh, when it's an investment property, max LTV. There and there is no CLTV uh, type scenario, uh, for these loans that's gonna be higher than the LTV for the non QM loans. So do be aware of that when you are structuring your non QM loans. And it is possible to do limited review and in some cases we have investors. That have a, uh, very limited review, like one of our investors only asked, whatever options only asked for, uh, do any of the, uh, is it the, uh, the 15 percent or more, what's the percentage of accounts, 60 days or more than the 15 percent as the threshold. And that's it as previously stated, um, The primary limited review or second, uh, limited review, uh, loan first mortgage can be combined with the HELOC for 90 percent CLTV. And, last but not least, something to be aware of, you heard me mention, uh, non warrantable condo, uh, loans as, uh, an option when you fail the limited review. Why would you not go straight to the non warrantable condo loans is going to be because the limited review condo loan is going to be usually higher LTV. For the occupancy type and lower interest rate and a lower cost to the rate as well, much, much lower cost of the rate when it's a regular, uh, full dock, uh, Fannie Mae, 10 percent down, 90 percent LTV loan, as opposed to a non warrantable condo loan on QM and possibly 80 or 85 percent down. LTV. So, uh, definitely some great, uh, tools here to help you originate, uh, and increase your lending footprint. And, uh, do look to the mortgage calculator for all of your limited review condo loans, as well as agency and non QI. Perfect. Thank you, Jose. I don't see any questions here, but definitely again, amazing info for everybody to know, and especially for the Florida licensed people. Sure. So still no questions. We'll go ahead and wrap it up. Remember that we do this at 12 p. m Eastern every week, uh, Every Tuesday, Wednesday and Thursday where we do a new loan officer training. So thank you everybody for tuning in And we will see you tomorrow at 12 p. m. Eastern for the next episode of the loan officer training series with the market