I participated in a round table think tank discussion this morning that was comprised of lenders, appraisers, real estate agents and a representative of our local Board of REALTORS. The focus of our meeting was the many financing and appraisal obstacles we are all facing as Fannie Mae and Freddie Mac has continued to make their underwriting guidelines more and more difficult. In other words, buyers are having difficult and sometimes impossible outcomes in obtaining loans. Our group of professional’s work in a very heavily populated condominium market.  For those properties that are held within a condominium or homeowner’s association regime, the lending, appraising and underwriting process has become a nightmare.

We all agree that buyers and sellers need to understand this process.  But this process is changing daily because of the crisis we have experienced in the banking industry. Sellers must know when they list their property for sale that the master association for their property must also qualify in order for a buyer to be able to get a loan.  The Rules and Regulations, By-Laws, budgets, insurance policies, everything, are subject to review by lending underwriters.  Many loans are not getting made because of deficiencies within the association. Think about this, you are trying to sell your property in a difficult market. Your real estate agent finds a financially qualified purchaser for your property. The buyer applies for a loan (note – it doesn’t matter if they put a very large down payment – the building will still have to qualify), the lender begins reviewing all of the condominium paperwork and Fannie Mae is looking for 100% replacement cost on their master insurance premium, and the building only has 80%....the loan will be denied. You, as a seller, have to insist that your board of directors know about these things and take the adequate measures to insure that you will be able to effectively resell your property. Otherwise, the value of your unit, and every other one in the building will go down. This is just one example of why a building could be turned down as  “qualified”. The list of reasons goes on and on and it’s going to get worse before it gets better.

As a buyer, you need to know that most large institutional lenders can not make a loan on a condominium. They don’t portfolio their loans. They want to sell their loans, and the underwriting standards are so strict, in many circumstances, they can not sell these loans, so they will deny financing. Here’s a biggie that a buyer needs to understand. When you see an advertisement for a very low interest rate..…if it sounds too good to be true, it probably is. There are so many variables that are now used to determine the interest rate that a borrower is ultimately given. These variables extend beyond the credit worthiness of the purchaser.  They extend to “what” the purchaser is buying. What you are buying will directly affect the interest rate you receive. Yet many lenders will not tell you that up front. They will tell you they can do the loan. You will get through the whole process, have invested time and money, and in some cases only days before the final settlement, the lender will tell you that underwriting turned your loan down based upon, again, qualifying factors relative to the property that you are buying.

Sound confusing… yes, it is. Here are some more questions that should all be discussed up front.

How far back are comparable sales being accepted?
Does the appraiser use “pending sales” data for his appraisal?
What if there are no comparable sales in the building? How does the appraiser make adjustments?
Does the appraiser address market conditions on the appraisal?
Are adjustments made for distress sales? (Short sales and foreclosures).
Will a local appraiser do my appraisal, or will someone who is not familiar with my local market be used by this bank?
How long will it take to do my appraisal?

How much down payment is required for a primary home? Secondary home? Investment property?
Are there investor loans available?
How is the interest rate affected with investor loans?
What constitutes an investor loan?
What are your predictions for interest rates?
How important is my credit score?
Can loans be secured for condos that have some time share in the project?
Can rental income be used to qualify?
Is there a list of Fannie Mae approved properties?
Will you require the full set of documents from the Condominium/Homeowner’s Association?
How do you determine which appraiser you will use?
Is full insurance replacement cost available for the property I am looking to purchase?
What is the effect if there is pending litigation within the project I am considering?
What if several owners in the building are delinquent on their dues? Will that affect my loan?

I am sure I have raised more questions then answers here. Our local group is going to work together to get these answers. We want to educate our sellers, buyers, condominium and homeowner’s associations, and management companies for these groups. We want the value of your property to be maintained, and all these factors, and more, are critical in achieving these goals.