Most people are aware they’ll need to have their own finances in check when applying for a mortgage, but did you know your potential new home will also come under scrutiny? Adam Dahill, Mortgage Loan Originator with Mortgage Master in NYC, tells us why your personal monetary practices aren’t the only consideration when financing a real estate purchase.
In addition to looking at the income, credit, etc., of an individual applying for a mortgage, banks also consider the building a person is buying in. Why is that?
Many lenders will apply Fannie Mae’s condo warrantability guidelines even if they don’t sell their loans to Fannie. It’s the industry standard.
Lenders need to know how stable the project is. A condo where most of the units are rented is less desirable and less marketable. If many units are held by the sponsor the home owners have less control of their community. If many units are behind on maintenance it will adversely affect the owners that pay on time. If there is litigation then there is the potential for a future settlement that can hurt the community.
How much can rates vary depending on the building?
Tough question because a small change in rate can have a huge affect on larger loan amount, not so much on a smaller loan size. Not only the rate, but also the Loan to Value will change for a non-warrantable condo or coop. It could be .5% or even 2% higher. And some loan products may not even be available.
What “red flags” can a buyer look for to let them know a building they’re thinking of purchasing in may have problems?
Anything that would make a condo non-warrantable would be a red flag. [You can see more about Fannie Mae warrantable condo guidelines here.]
What about townhouses and single family homes?
Is the building structurally sound? Is it habitable? When was the last time the property was renovated? Does the property conform to the legal use? Typically you can under-utilize a home — meaning you can utilize a legal three family building as a two family, or a legal two family as a single family — but things get difficult if there are illegal units. A two family being used a three or four can be a deal killer, let alone a liability. If you had an illegal unit and there was a fire you could face criminal charges if a tenant were to be injured or die.
What’s the best way for a buyer to find out if the building they’re looking at has any financing issues?
Speak to a mortgage professional, speak to real estate agents that have worked in the building before, and check ACRIS for recorded mortgages to give you a hint on which banks have recently lent.
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