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FHA? Conventional? Neither? None? And You Want To Buy a Condo? Uh-Oh…

February 12, 2012

“Wow, I’m so excited!  I’ve saved 5% for a down payment, I’ve been pre-approved and I’m ready to buy my first home!

Sigh…..I wish I could be as excited as you are. I wish it was like it used to be – find a home, make sure you are pre-approved for a loan (any type of loan), place your offer, get it accepted, go thru escrow and get the keys – now that was exciting!!!

Yes, prices have dropped and yes, there are a lot more homes/condos/townhomes in your price range that are fantastic, better than you had hoped for a few years ago, when prices were out of your price range.  But financing has gotten harder to get and that is the issue here.  I’m sure that if you have gotten this far, you have heard the terms FHA financing and Conventional financing.  These can both be low downpayment loans.  If you are buying a condo, this is where we all run into problems.

FHA financing gives you the options to get loans at 3.5% to 5% down and your FICOs can be down in the low 600’s.  Conventional financing also give you the options for loans starting at 5% down, but FICO’s must be in the upper 700″s for these very low downpayment loans.  If these are the types of loans you are interested in, then buying a condo has become MUCH harder for you, and for me, and for your lender……

Southern California home prices have dropped a lot since 2007 and a lot of homesellers have been hurt by this.  Either they have lost all equity in their homes and decide not to sell, or they find that the economy has really “done them wrong” and they have to sell.  With that loss of equity, they will have to do a Short Sale – short selling their home where the mortgage is now higher than the current market value of their home.  Now, here is where it gets really hard.  These same homeowners – the ones who can no longer make their mortgage payment – also stop making their HOA payment and this hurts the new buyers!

Last year a lot of condominium complexes had their FHA certification  expire but many are in the process of recertifying and some have decided that they will not go thru the process at this time.  To recertify, they have to meet all of the criteria needed for these financing rules:  There are 3 criteria that are very important for both type of financing in condo associations.  There must be no litigation, the Owner to Tenant ratio must be at least 50% – 50% and the HOA dues deficiencies can be no higher than 15%.  Short Sales and Foreclosures have caused the last two to become very prevalent in most HOA’s and therefore cause a bigger problem for the new prospective buyers.  If these factors are in place, there is NO FHA financing and the only Conventional financing can be at 25% down – or the buyer has to pay cash! 

When sellers decide they cannot sell for what they were hoping, a lot of them move and rent out their current residence and this causes the owner to tenant ratio to go up.  When Short Sale sellers stop paying their HOA dues, this causes the deficiency to go up.  Now, it can change on a daily basis – if the HOA deficiency is just a little over the limit, and there are a few homes in escrow, once they close escrow, that deficiency can be wiped out.  If the new buyer will be the homeowner, then the owner to tenant ratio comes up.  In a lot of complexes, tho, these ratios are so out of balance that the HOA has just decided not to seek recertification.

My job as a Real Estate Agent has now gotten much harder.  It isn’t enough for me to find your dream home, work with your lender, walk you thru escrow and hand you the keys!  (No, there is a LOT more that I do, but I’m just fine tuning it down) I now have to look into hundreds of complexes in the cities you want to be, in the price range you need to be and make sure the complex is FHA approved (even if you want to do conventional financing).  A lot of the Listing Agents do not know the names of the HOA’s and if they are approved, so that becomes my job as your Buyers Agent.  I am literally amazed when I make the phone calls to get this information and get told “I have no idea, you can find out”, “Yes, I know it was FHA approved last May” but now it’s February of the next year, “just find a buyer to pay cash” – yes, I get that one too.  A lot of HOA’s don’t return phone calls or emails and by the time your lender can get this information, your 17 days contigency time period is just about up and you’ve already paid for your inspection and appraisal – not good.

As a Listing Agent, my first duty to both my seller and any buyer is to get that information from the HOA so that I don’t waste anyones time later.  I like when I get phone calls from other agents thanking me for putting that information in the MLS so they don’t waste their time showing it to a buyer that has to go FHA.  As a Buyer’s Agent, I’m frustrated when agents give me the answers quoted above and also thank the listing agent for being so forthcoming, saves me time.  Something has to give, and soon.  The more buyers cannot buy, the more sellers will lose their home to foreclosure, making all of the ratios rise even higher.  I love working with buyers, those that are ready to go and excited and I hate being the bearer of bad news so if we are prepared up front to deal with this – great!!  Stick with me, we will find a way to get your into that perfect condo!!!  I may not sleep, I may pull my hair out, I may have a glass or two of wine (anymore than that and I will just go to sleep) BUT I will find a way to make this work!!!!

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