In The Market For a Condo? You Can’t Afford It!
With mortgage rates at historic lows, you might think first time buyers will be falling over themselves to buy entry level homes. In California, condos count as entry level homes. But starting April 1st, Fannie Mae and Freddie Mac have just changed their guidelines for mortgages when it comes to condos.
It may now cost borrowers between 3 and 5% more to finance a condo versus a single family home!
Fannie Mae now has a mandatory fee of 3/4th of a percentage point on all condominium loans, no matter how high the applicant’s credit score. For a once-popular interest-only condo loan with a 20% down payment and a borrower credit score of 690, Fannie imposes the following ratcheted sequence of add-ons:
- 0.25% as an “adverse market” fee
- 1.5% for the below-optimal credit score
- 0.75% for the interest-only payment feature
- 0.75% fee since the property is a condo
The total comes to 3.25% extra, which can be paid upfront or rolled into the loan. Additionally, condo units with a high percentage of investors or commercial tenants may now be impossible to finance.
Companies like Wells Fargo have also lowered the threshold for total debt-to-income ratios from 45% to 41%. Their minimum FICO for a conventional loan without 20% is now 720, up from 620!
On top of this, getting an appraisal is now more expensive. It used to cost about $275-$325. Nowadays, its in the range of $400-$450, with no guarantee that it will come close to where you think it will.
Another issue to be aware of when purchasing a condominium or a townhome is the reserves held by the Home Owners Association. If they don’t have enough reserves, you may be assessed for repairs. One of my friends was assessed $15,000 for renovating the exterior of the unit. Not a small sum of money!
This is sure to negatively impact the prices of condos, which will put further downward pressure on certain housing markets. There’s nothing like more affordable housing!
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April 21st, 2009 at 3:17 am
Fair points…I just feel that we should all take our time in the real estate market. Unless you can buy with 50% down, and rent it out, tread cautiously.
April 21st, 2009 at 5:49 pm
Sad.
(P.S. Love your site – Check it almost everyday!)
April 21st, 2009 at 7:48 pm
Sounds like you are happy that prices will actually go down. You looking for affordable housing?
April 21st, 2009 at 8:08 pm
I can’t say I’m unhappy. But being a renter in LA doesn’t hurt right now
April 22nd, 2009 at 8:04 pm
Condo buyers are taking it on the chin, “adverse market fee”?? What the heck is that. No wonder there is an adverse market…
April 24th, 2009 at 12:33 am
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