New Guidelines for Conventional Loans for Condos

Blog Post Image
Real Estate

The lending requirements for condos have changed. Before you buy or sell an attached condo (a residential dwelling that is physically attached to 4 or more other units), here is what you need to know. 

Fannie Mae and Freddie Mac have required additional Condo/HOA documentation and addendums regarding building safety, soundness, structural integrity, and habitability for projects that have 5 or more attached units.  Without these, Fannie and Freddie will not buy the loans, effectively making the condos “non-warrantable”. Lenders are hearing from the HOA’s that they are being advised by legal counsel not to complete the addendum. That refusal effectively kills the deal and the condo is no longer eligible for financing.

If you currently own a condo that falls into the category of 5 or more attached units, there are steps you should take before offering the unit for sale. Fannie Mae form 1076 is a questionnaire that lenders will require your HOA to complete when a buyer applies for financing to complete the purchase of your condo. It can be found in the Fannie Mae Selling Guide  You should download a copy of the questionnaire and take it to your HOA or management company now. Schedule a time to sit down with the Board members or management company and review the document thoroughly. Ask specific questions and get a commitment that they will complete the form when a lender makes the request. Find out if there is an established process, and get a commitment on the timeline for completion. 

Anyone who manages an attached unit condominium building or holds an office on the Board should already be familiar with this questionnaire and stand ready to support all residents. In reality, there will be many such entities who are not familiar with this new requirement, and will be unprepared to provide answers when the requests come in. You don't want to get all the way to point where you have secured a buyer who has applied for financing only to have this kill your deal. It is up to condo owners who will be impacted by this "temporary requirement" to insist that Boards and managers do what is necessary to be qualified to complete the form, and to demand accountability and compliance. Below is an excerpt from page one of the required form, date March 2016 with addendum added December 2021. This is just the first section. The form itself is 8 pages. 

Here is an excerpt from page 6 of that same form:

As you can see, these questions require a comprehensive knowledge of the building's maintenance schedule, architecture, and financials. The preparer must be identified by name and provide contact information that will be kept on record with the lender and with Fannie Mae. As stated above, many who hold positions within an HOA or management company are being advised by council not to complete the form because they can be held personally liable for the accuracy of the information. 

Remedy in the event of refusal to complete the form is very limited. Currently lenders may be able to fund a loan by 1) reviewing a current reserve study; or 2) obtaining 6 months of HOA meeting minutes. If neither of those exist, you could be selling a condo that isn't eligible for financing. You would have to find a cash buyer who is willing to purchase a condo that isn't eligible for financing because you can't verify the structural integrity. Would you buy that condo? 

Don't be caught off guard when it's time to sell. Due diligence now will mean a smooth transaction later when you sell your structurally sound attached condominium for the best possible price because you were prepared.