At Jensen and Company, we are always looking for ways to better educate perspective condo buyers by digging deeper into the the ways condos are classified and financed through major lenders like Fannie Mae. Ian Poor from Intermountain Mortgage has written another guest post for us explaining the difference between Limited Reviews and Full Reviews of perspective purchases.
The Condo Conundrum Part Two
By Ian Poor from Intermountain Mortgage
Park City and the surrounding areas offer a wide variety of condominium projects, everything from multimillion on-mountain units to one bedroom apartment style units out of town. Financing the purchase of a condo is not necessarily difficult but there are a few factors that should be taken into account. The following details can help prospective buyers and realtors alike as they evaluate different condo projects and the amenities they offer. This is the second installment of the Condo Conundrum. Part one covered the basics of Warrantable vs. Non-Warrantable condo projects. This installment covers Limited Reviews vs. Full Reviews.
When purchasing a condo, the condominium project is almost always subject to either a Limited Review or Full Review. Fannie Mae guidelines are the most common set of underwriting guidelines followed and they dictate whether a Limited Review (LR) or Full Review (FR) is required. The following is a summary of how each review is determined necessary.
Loan to Value (LTV) Factors:
When purchasing a condo as a primary residence, a LR is acceptable when putting down 10% or more, a LTV of 90% or less. When purchasing as second home or vacation property a LR is acceptable when putting down 25% or more, a LTV of 75% or less. When purchasing as an investment property the condo is always subject to a FR.
There are other factors that can change the requirement from a LR to a FR. As noted above a buyer putting 10% down on a primary residence would normally see a LR on the condo project. But if the project was new construction and not all units have been sold and closed this would require a FR. Also some underwriting waivers may be necessary to get an approval but could also require the FR instead of a LR.
Why is a LR better?
The LR requires less documentation and is a more simple process. The LR typically requires a condo questionnaire and review of condo insurance (and other standard items like an appraisal). The FR typically requires additional documentation such as governing documents (CCRs, bylaws), budgets, balance sheets, and sometime more in depth research of the project. If an HOA is running the condo project correctly and the governing documents are up to date a FR should not be an issue but the more documentation required the greater the chance an issue could arise.
Please contact Ian Poor and Rob Karz for specific lending questions.
Rob Karz and Ian Poor
Karz • Poor Resort Lending Group
Intermountain Mortgage Company