Loan Officer Training - 11/5/2024 - Mastering Condo Loans for Loan Officers

Condo loans come with their own set of challenges and complexities, from unique underwriting requirements to HOA involvement and complex property approvals. In this episode of Loan Officer Training, we’ll dive into the world of condominium loans and uncover what every loan officer needs to know to navigate them with ease. Learn how to confidently assess condo eligibility, tackle condo-specific guidelines, and overcome the common obstacles that can arise during the approval process.

Join us as we break down essential topics, including reviewing condo project approvals, understanding warrantable vs. non-warrantable condos, working with homeowner associations (HOAs), and ensuring compliance with investor and agency requirements. You’ll walk away with a clear strategy for managing condo loans, along with insights into what makes condo financing different from traditional single-family loans.

Whether you're new to condo loans or looking to sharpen your skills, this episode is packed with expert insights, practical tips, and real-world scenarios to help you close condo deals smoothly and efficiently. Master the art of condo loans and boost your lending expertise, positioning yourself as a trusted resource for clients navigating this specialized market. Don’t miss this essential guide to mastering condo loans and growing your portfolio!

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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 a

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

Loan Officers for Unlimited Free Non-QM Leads & Trainings Join The Mortgage Calculator at https://themortgagecalculator.com/join

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 thousands of Non-QM mortgage loan program variations 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 licensed Mortgage Loan Originators can assist our customers with Conventional, FHA, VA and USDA mortgages as well as acc...

Transcript

Restream recording Nov 05, 2024 • 05:00:48 PM: 0:13

So what exactly do, what exactly do we mean by a condo? Right. Condos or condominium, which is the full term for it. A condo is an individually owned residential unit in a building or complex of other residential units. By the way, there are detached condos that, for all intents and purposes, look and feel like a single family home. They may even have a fenced yard, but they are actually condominiums, because the governance is condominium according to the rules and regulations and covenants and easements and all that kind of stuff. And you own a proportionate share of the space of the whole condominium structure, right? So that's, that's what he says. Uh, and we're unit owners share a common space and pay association fees to maintain the common space and amenities. and you as the unit owner own a proportionate share of the whole. So if there's a hundred. Units in that condominium association because you could have more than one association for a complex depending how they want to be set up But let's use for this example a hundred units and you're one of the hundred you own one percent Of the whole of everything condominium common areas plus your space Inside the walls because you actually don't own Outside the walls that's owned by the condominium. What you own is your proportionate share of the home 1%. So as you can see, very different form of ownership, especially when you're considering that, what, how you really share ownership with a bunch of other people and how in essence, then the health. The financial health of the association is monumental to the success of a loan with a condo. So when you have a condo as a property type, you not only have to approve the borrower's credit and income and assets, of course, you not only have to approve the property value, and property condition, right? Of the individual unit. In this case of the condo that they're purchasing. But you also have to approve the association and the financial health of the association and operational health of the association and all the other factors that are going to come into play when reviewing that. So we, we've had our condo review and limited review training. So, you know, that's part of what we're looking at here because That's, that's the one that is, uh, the least obvious when you are embarking on the mission, you know, your borrower's credit income and assets. Right. Uh, you know, the comparable sales also, you can readily, you readily have access to that information. Just like you have access to your borrower's information. Once they submit a loan application for pre approval, but you don't have ready access to the association financial information. So you have to be requesting a budget. You got to be requesting a balance sheet, but then there's other information that isn't going to be available until you get the kind of questionnaire back. stuff like litigation. So, um, the items you consider then, you know, first and foremost, we're talking association financial and operational review. Right. What's going on with that? Are you going then depending on the initial information, you may find out you do your exploratory research. Uh, maybe the borrower you haven't pre approved and they tell you, Hey, yeah, I'm, I'm looking to make an offer on this particular property. This is the, the property info it's listed. This is the listing agent. You may want to reach out to the borrower's agent, their, their, their agent and tell them, Hey, can you please obtain a copy of the budget? For me and a copy of the balance sheet, right? Or you may conversely, if you have the listing agent information, it wouldn't be a bad idea to reach out to them. You're already introducing yourself. Hey, this is Jose Gonzalez with the Morgan's Calculator. I'm working with Jane Smith on, um, pre approving her for your listing. Right. And I just wanted to know if you can please provide me with a copy of your budget, of the budget and the, uh, Balance sheet for the place. And by the way, would you know if there's any litigation?'cause that's going to be the other one besides, uh, investor concentration. Right? Um, so at that point, you're gonna get that information. You're gonna do a quick review of the budget, and you're gonna look for reserves or not right? And the income, hopefully it's at least zero. If they, if they have reserves, you'll see it in a budget and in the balance sheet, which then is gonna determine. If this is going to be a limited review condo loan or a full review condo loan of the association, right? First fork in the road right there. Then as you're looking at the budget, one of the things that may not be readily available, but you'll see delinquent accounts. Reserved for delinquent accounts. Hopefully somewhere in there is this is another question in the questionnaire that only the association would know is are 15 percent or more of the units 60 days or more past due on the assessment and the monthly bit on the monthly association fee because if they are, that's another issue. That's going to come into play. And at that point, uh, you know, it may not be applicable even for limited review. And then you're thinking maybe non warrantable condo. Let's see how they're going to deal with it. They're going to ask for, show me the money somewhere else that you have to cover that liability, you know, when it's non warrantable. And we were talking investor concentration, right? What percentage of the units are held as rentals? That's going to be another determining factor on, um, limited review or non warrantable condo. Is there any hotel motel short term or rental use of the building now? Short term rental use may not necessarily disqualify if they allow it. As long as there is not a, like a reception desk or front desk, uh, to check in to guess that, you know, if there is, then, uh, totally, uh, not gonna work. Uh, for, uh, Fannie, it's not gonna, it's gonna definitely be non warrantable then. Uh, is the commercial space greater than 35%? You get a lot of these mixed use buildings where the first floor is retail. Professional office and the like. So, you know, you're going to have to see if it is, and that's going to be another question that's going to be on the condo questionnaire. And then there's any single entity own more than 10 percent of the units. Again, another kind of questionnaire, uh, question and then litigation. Now the litigation one, the agent could probably let you know off the bat if there is, or if there isn't. And at that point. If there is litigation and they can provide some documentation to show that they have reserves to cover the contingent liability of any adverse, um, findings in court, adverse judgment against the association, that's what it's going to take if there is litigation, even if you go non warrantable. And then, really important, uh, is there adequate hazard and flood insurance? Now, the flood insurance part, there's not, uh, you can usually get coverage for, uh, flood insurance for the unit. That'll help you overcome that hazard, I mean that, that obstacle. But, not having adequate insurance, hazard insurance for the building per unit, that's going to be a little bit of a tougher one. For Uh, to overcome and lately, uh, you know, that has been an issue in a couple of units. So, you know, it takes a lot of follow up from the agent, especially the agents providing some type of confirmation that the coverages for replacement costs, especially for, uh, Fannie and Freddie on agency loans. Now, they just passed some new guidance, uh, on, um, insurance requirements, uh, for the master policies. And they're looking at needing some kind of written confirmation, uh, for, um, replacement costs or even an R C E. I actually had a brand new. Uh, unit closing. It looked like a townhouse, right? But it was actually condo association and we had to get an RCE for the complete structure, the building that that, uh, unit was in. I think there were like, Eight or ten units to the structure and we had to get the RCE for that and have them reconcile it to the policy and accepted that it was adequate coverage and it took a bit because this came this happened just when the guidance came out with about three weeks ago, a month ago. So now they know, so now they're going to be ready at the developers and, and, and, uh, at the associations, but that guidance just came out. So be aware. Adequate hazard and flood insurance is definitely now more important than ever. Now something else that is going to be readily known if you're buying the new development, they're more apt to give you the information, but once it's already in the hands of the HOA, that's a little bit different, but project completion, right? Is it less than 50 percent sold? Or more than 50%. So that's going to be the pivotal point to be able to offer the preferred financing. And then who's in charge of the H. O. A. Has it been passed over to the, um, So the, is it still in the hands of the developer or has it been passed over to the association? And are all common, are all the common area elements complete, right? Tennis courts, swimming pools, rec rooms, whatever, this still under construction. It's going to be an issue. For being able to offer a warrantable financing typical. So, you know, what, this is just to determine, are you going warrantable? Let me review now warrantable. What are, what path is your condo loan taking? Cause remember, this is so different from a single family home. And then on the appraisal side, please do know that the appraisal for a condominium is a different, uh, appraisal. Obviously then a single family home. It's a different number also, right? The appraisal, uh, code, I guess you want to call it. If it's Fannie Mae it's form 1073. So when you order the appraisal for a Fannie Mae loan of a condominium, it's you're going to order form 1073. And if it's a Freddie Mac loan, right? LP, remember Fannie Mae is the. D o or d u of your broker d o of your lender. We're lenders and shreddy mac Will be lp. So if you use do for your loan it, you would need to order a form 10 73. If you used LP for your loan, you'd need to order a Form 4 65, right? So form 65, Freddie Mac for 10 form 10 73 Fannie Mae. And if you need to order the market rent schedule is gonna be the same form 10 0 7, right? That's the the market rent schedule where they're gonna get the comparable rental comps. for your investment properties. And last but not least, uh, let me see if I can move up a little bit here. So, nope, nope. Sorry about that. I was trying to get the, uh, the bottom there a little bit better. Let me share my screen. All right. So, um, deferred maintenance or 40 year certifications. That's the, what you can't see there in the bottom of my screen below 1007 market rent schedule, but that's the bombshell that is, um, about to land in 2025 in South Florida condo market because the legislation that, uh, was enacted to deal with the tragedy of, uh, of the condo that we had, um, that, um, basically crumbled onto itself there, uh, So they've enacted certain, uh, uh, legislation that is going to force the associations to deal with any deferred maintenance because they are having all to turn in engineering reports to see what shape the buildings are in. And then on top of that, they're all having to do their 40 year certifications. Uh, a lot of them, or if not, they have to bring it up To code on these engineering reports, regardless of the, they were not due yet for the 40 year certification. So what that means is that there's going to be a lot of special assessments that are going to be placed on a lot of these units and the monthly association fees are going to increase most likely. Now some buildings are already in compliance, but I would say many buildings are working on it right now and I'm sure that Uh, once everything becomes final in 2025, there's not going to be an option. They're going to have to do it and then there is going to be, uh, like I mentioned, a lot of assessments, special assessments, uh, increases to bring these buildings. I've seen as much as 10, 15, 20, 000 per unit, depending on what needs to be done and on how many units are in the, um, the association. So. Uh, a lot of stuff to deal with here with the condos. Uh, I'm going to, uh, check out the questions now. Uh, please make sure you do post some questions and do note, um, remember Florida market limited review condos are maximum 75 percent LTV, 90 percent CLTV, the rest of the country. 90 percent LTV. So first question here that we have is, is the condo association like an HOA? Yes, the condo association is a homeowner's association for condos. So I guess you could call it a condominium owners association, I guess, technically. As opposed to a homeowner's association, even though the terminology HOA is used just to refer to an association of homeowners. In this case, it would be of condos. So yeah, that's just, uh, they're going to govern, that's the governing body and they're going to enforce the rules and regulations of the association, um, according to whatever the bylaws are. So, uh, now we've got the next question. Uh, will the condo association have a reserve study? Yep. That's going to be part of the engineering report, right? There's going to be an engineering report that's going to have to be provided. By the condo association on all the different, uh, components of the building, uh, and basically they're going to have to be brought up to code. Those that may not be yet in code and those that got to do their four year certification are going to have to do them as well. So yeah, it's gonna, and then once that you, uh, you identify what needs to be completed and you get estimates from all the different, um, tradesmen that need to complete all the work, then, you know, you're going to have to reconcile to the budget, uh, add that special assessment if there, if there isn't reserves to cover that, if there's money reserves to cover that, plus a special assessment for the extra amount that I'm sure the homeowners have not considered, uh, you know, that'll, that'll come into play. And then on top of that, the reserve requirement for, uh, Fannie, Freddie, uh, FHA, you know, to have a warrant of a So, you know, a warrant of a condo on the agency loans is 10 percent of the annual budget. Now, those annual budgets are going to increase overall, uh, and then on top of that, they're going to increase furthermore because then they're going to have to calculate the reserves to match to be 10 percent of that in order to be in compliance. And there's no ifs, ands, or buts about it. They're not going to be able to put it up to a vote to the condo owners to see if they are, um, In agreement to increase the monthly fee to cover reserve and up to now, they had that option and they were all just kicking the can down the road because they didn't want it to happen during their tenure of occupancy. But now it's not going to be a choice. So, uh, great question. I don't see any additional questions. I'll give it another minute to see if anyone has any questions regarding limited review or just regarding condo financing in general. But do be aware also, you know, the ideal scenario would be that you look in the FHA list and you see that the building is FHA approved and you look in the Fannie Mae list and you see that the building is Fannie Mae approved. Then, you know, you have a slam dunk, but unfortunately that's not always the case. So on the conventional side They don't need to be approved. They just need to meet the guidelines, you know, from the condo questionnaire and all that kind of stuff, whether you go limited or full review. And then on a VA the same, and then on FHA, if they're not approved, then you just have to work with the, um, the investor on the loan, because there are some, uh, FHA conduits out there that will quote unquote spot approve a building. And then as long as there is not a greater than I think 15 percent FHA concentration in the building already, they may do it if the building meets the other criteria, you know, so they, you got to have collaboration from them and you got to have a little bit collaboration from the building association to also provide the needed docs. Just like with the, um, conventional loan to get the building approved so that you can close your FHA loan. So that is an option, but again, it's not available for every FHA conduit out there. So you do have to reach out to whoever you're considering, uh, submitting the loan to, to make sure that they do offer that option. So that then, uh, you can get the ball rolling and then you can also check public direct records to see if there have been any recent FHA loans closing in that building. Because if that is the case, and you know, if somebody else was able to get it done, then hopefully, and it was recent, that means that that. that the needed documentation should already be there with the association to try to close this as an FHA loan. But do be aware that when you're pre approving your borrowers for condo loans, it's, it's great that you're pre approving their credit and income and all of those, but do be aware that the building Like what we just mentioned, the building association is a big deciding factor on what type of loan financing will be possible for that, for that purchase, if it is a condo, probably more so, just as much, I would say, definitely, as the credit and income factors. of the bar. So, all right, I don't see any additional questions. So, I think that, uh, we can, uh, call it a day and I do look forward to seeing you all tomorrow, uh, for tomorrow's training. Have a great day.