3B Limo

Financing a condo is similar in most respects to financing a detached single-family home, but it’s more complicated. The secondary-market requirements for condominiums fill several volumes. I can’t go into all those requirements here, but I can tell you that with the number of it’s that have to be dotted and it’s that have to be crossed, you shouldn’t attempt a condo purchase without hiring an attorney to represent you.
The most basic question to ask about any condo you’re considering buying is whether it has obtained the approval of either Fannie Mae or Freddie Mac, or is capable of being approved. Fannie Mae and Freddie Mac are the two key entities of the secondary market. They purchase many of the mortgages that local lenders originate. Condo developers will often obtain Fannie Mae or Freddie Mac approval before they begin marketing their dwellings. Some existing condos already have the approval; some have not received formal approval but meet all the requirements needed to do so.
If a condo hasn’t been and is not capable of being approved, you may have a hard time finding a lender willing to finance it. And even if you obtain a mortgage now, financing could be a problem for any subsequent buyers you might want to sell to in the future. All in all, it’s easier to buy and sell a unit that meets secondary-market requirements than one that doesn’t.
Among the hundreds of secondary-market requirements that condos have to meet, there are two that are especially critical and that buyers can check out on their own before getting too deeply into the purchase process.
First is the number of units that have been sold in a new development. Typically lenders won’t approve a mortgage on a unit unless at least 25 to 30 percent of the other units in the complex have been presold. That’s an obvious problem in a new development in which sales have just begun. So what often happens is that the lender providing the funds for the construction or the renovation will also agree to issue mortgages to the buyers of individual units. That ensures the availability of financing for early buyers, though those buyers may find the rate available from this lender to be a bit higher than prevailing mortgage rates in the market area.
The second secondary-market rule you should be aware of is that at least 70 percent of the units must be owner-occupied. A development in which more than 30 percent of the units are owned by investors who rent them out to tenants is not likely to pass muster with most secondary-market lenders.