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CAT | From a Banks point of view

Sep/09

17

Condo’s that do not qualify for FHA/Conventional Financing

3 Comments | Posted by Daniel Reynolds in From a Banks point of view, Non-Warrantable Condos

Over the last six months, we’ve seen condo prices drop by 60% in price. You would think home buyers would be flocking to these prices in herds, but let’s take a look at a typical condo in today’s market.

A good buyer can find a nice condo in North Phoenix/Scottsdale for under 35k. This is a great price for anyone looking to own a home. The price alone would yield a mortgage payment of less than 175pi (5.3%APR). Take into account HOA and their total payment would be less than $400/monthly. The problem with condo’s in this market is the owner/investor ratio which is prohibiting buyers from purchasing such good deals.

Owner/Investor Ratio-What is it? Why does it matter?

This ratio is set by FHA guidelines and Conventional Guidelines as a marker point of how risky the mortgage could be. In other words, it tells the underwriter the purchase is more likely to turn into an investor purchase rather than a owner occupied buyer purchase. You would think this is irrelevant because most people can afford the mortgage at today’s low rates. However, FHA and Conventional would say since this appears to be an investor purchase, you might not walk away from the property if you can no longer rent it out. Because of this, lenders consider the condo, Non-warrantable when investors own more of the condo’s than owner occupants do.

When a lender says the condo is non-warrantable

Once the lender receives the HOA cert. from the property management company, they’ll know how many investors own condo’s in the community. If the ratio is over 50%, it’s considered non-warrantable and you’ll be required to either put 20% down or required to buy the condo cash-without the lender’s assistance.

How to avoid running into non-warrantable condo’s.

It’ difficult these days to find a condo that is warrantable. Our company alone has turned down several buyers because of this issue. The only alternative is to find a seller carryback or find a hard money lender that will loan on a property like this. Our company will do just about anything to help someone qualify for a condo but if the buyer doesn’t have a good down payment, there’s nothing we can do.

Still want a condo but the condo is non-warrantable?

Calling our office and speaking with one of our Broker’s is your best choice. We can request an HOA cert. and find out how close you are to buying the condo through regular financing. If this doesn’t work, then we can request from the seller, a seller carryback or assist you with finding a hard money loan. These are your only options.

Our Opinion of the current FHA guidelines and Conv. Guidelines

This regulation is old and keeps holding people back from downsizing to a home they can truly afford. There are many people that still abuse the system and buy properties as owner occupied units when in fact they are investors, with the intention of renting them. But for every bad apple, there’s at least two good. Consider calling your District Rep and requesting this to be changed as we have done and still do.

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Apr/09

28

Double Close or double escrow. Is it legal?

0 Comments | Posted by Daniel Reynolds in Arizona Real Estate News, Buyer Information, Double Close Legal, Double Close vs Assignment, Flipping Homes, From a Banks point of view, Legal Double Close, What is a Double Close

Double CloseA double close is when a buyer/investor finds a property for someone else with the intention of reselling it to them without ever actually owning the property. This is done by contracting the property with this stated in the Buyer line, ” Buyer and or Asssignee.” The assignee is the  buyer who is buying the property from the investor. The investor raises the price of the property while it is under contract and makes money on the difference. This is called a double close or a double escrow. This is legal as long as it’s clearly stated in the buyer line. Our experience with working Assignee contracts, has mostly been primary resident owners and usually do not mind a double escrow.

However, REO or bank owned properties have a clause within their addendum that states, “assignee or transfer within 30 days is considered a breach of contract.” If you are thinking of arranging a contract like this, make sure the broker understands your full intentions.

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