What is needed for a Condo Review?

The condo market is booming right now, with home prices up across the country.

Whether you’ve been renting for years and finally have enough saved for a down payment, or you’re looking to downsize from that big single-family house into a lower-maintenance lifestyle, buying a condo can feel like the perfect next step.

However, before you get too excited about all the amenities and community features your dream condo offers, it’s important to understand the process of obtaining condo project approval.

Known as the “condo review,” this step is critical for your mortgage to be approved.

In this blog post, I’ll cover all the ins and outs of the condo review requirements from Fannie Mae and Freddie Mac so you’ll know exactly what to expect and can be fully prepared before putting in an offer. Let’s get started with the first steps!

Condo Approval details Needed for Fannie Mae and Freddie Mac Approval

Fannie Mae and Freddie Mac are the two largest sources of mortgage financing in the United States.

They have both been government-sponsored enterprises (GSEs) since they were created by Congress to increase the availability of mortgage capital and provide homeownership opportunities for low-income and minority families.

They also stabilize mortgage markets during times of economic stress and operate as efficiently as possible with limited taxpayer support.

Today, Fannie Mae and Freddie Mac play a critical role in supporting housing finance by providing financing for approximately 80 percent—or $5 trillion—of all mortgages originated each year.

Fannie Mae provides liquidity for lenders so that they can make loans. They help millions of Americans who want or need to buy homes or update their current homes with energy efficiency improvements such as windows and insulation every year.

However, for a condo to be eligible for a Fannie Mae or Freddie Mac, you will need to run it through the condo approval process. This process will require a lot of information, which we have listed below. This way, you will have a head start in your paperwork filing.

Condo Association Info Needed For The Condo Review

Providing comprehensive Condominium Association Information is crucial when applying for Fannie Mae’s and Freddie Mac’s approval. The following details and documents should be included:

Budget: Include the condo association’s budget, which outlines the projected income and expenses for the upcoming year. This includes items such as maintenance costs, insurance premiums, utilities, property management fees, and reserves.
Questionnaire: Provide a completed questionnaire covering various aspects of condo association. The questionnaire typically includes information about the number of units in the association, the percentage of owner-occupied units, the commercial space (if any), parking availability, amenities, and any pending litigation.
Special Assessments: Disclose any special assessments that may be due or planned in the near future. Special assessments are additional fees charged to unit owners for specific repairs, maintenance, or capital improvement projects that are not covered by regular assessments.
Bylaws and Rules: Submit the documents that make up the association’s bylaws and rules. These documents outline the rights and responsibilities of unit owners, the association’s governance structure, restrictions on use, and other community regulations.
Condo Declaration: Include a copy of the Condo Declaration, which is a legal document that establishes the existence of the condo association, outlines the rights and obligations of unit owners, and defines the common areas and individual unit boundaries.

By providing this thorough Condo Association Info, you will assist Fannie Mae and Freddie Mac in evaluating the condominium association’s financial stability, governance structure, and overall health. It helps ensure compliance with their approval guidelines and increases the chances of securing financing for potential buyers within the association.

Condo Features

When it comes to condo ownership and management, there are several unique features that can be found.

These features may impact the approval process and require specific documentation. Here are some examples:

Cooperative Ownership: In a cooperative ownership structure, the residents own shares in the cooperative corporation rather than owning individual units. The cooperative association is responsible for managing the property and making decisions collectively.
Condominium Hotel or “Condotel”: A condotel is a combination of a condominium and a hotel. Unit owners have the option to rent out their units as hotel rooms when they are not using them. This unique arrangement may have specific regulations and management structures.
Mandatory Rental Pooling Agreements: In some cases, condo associations may have mandatory rental pooling agreements. These agreements require unit owners to participate in a rental pool, where rental income is shared among the owners. This arrangement can affect the ownership and management dynamics.
Timeshare or Segmented Ownership Projects: Timeshares involve multiple owners who each have the right to use the property for a specific period each year. Segmented ownership projects are similar, where ownership is divided into segments, and each owner has designated times to use the property.
Multi-Dwelling Condominiums: Some condo projects consist of more than one dwelling within a single unit. This could include duplexes, triplexes, or other configurations with multiple residential units within a larger condo unit.

These unique condo ownership and management features may require additional documentation and considerations during approval.

It’s important to provide all relevant information and consult with the appropriate authorities or professionals experienced in dealing with these types of properties.

Transfer Of Control

When it comes to condo association ownership documentation during a condo review, there is a need for clear and well-documented information regarding the ownership and control of the association.

This documentation is especially important in distinguishing between new construction condos and established condo associations.

The specific ownership documentation required may vary depending on the jurisdiction and the governing laws.

However, some common documents involved in establishing and clarifying condo association ownership include:

Declaration of Condominium: This document outlines the legal establishment of the condo association and sets forth the rights, responsibilities, and restrictions of unit owners. It typically includes details about the common areas, individual units, and the overall governance structure of the association.
Articles of Incorporation: These are official documents filed with the state that establish the legal existence of the condo association as a corporation. The articles typically define the purpose of the association, its structure, and any limitations on its activities.
Bylaws: The condo association’s bylaws provide guidelines for managing and operating the association. They outline important details such as election procedures, meetings, voting rights, and board members’ and officers’ roles and responsibilities.
Operating Rules and Regulations: These documents provide further guidance on the day-to-day operations of the condo association. They may cover topics such as pet policies, noise regulations, architectural guidelines, maintenance responsibilities, and dispute resolution procedures.
Minutes of Meetings: Keeping records of association meetings, including minutes, provides a historical account of decisions made, discussions held, and actions taken by the board and membership. These minutes can be valuable in demonstrating the decision-making process and ensuring transparency within the association.

It is important for condo associations to maintain accurate and up-to-date ownership documentation to establish the legal standing of the association, clarify the rights and responsibilities of unit owners, and facilitate smooth operations. This documentation plays a crucial role in ensuring transparency, resolving disputes, and maintaining the integrity of the condo association.

Individual Own Concentration

The individual owner concentration is the number of units an individual in a condominium project. For example, if one person owns 20% of your building, you’ve got a high level of individual owner concentration. Fannie Mae allows a single entity to own 20% of the units in a condo association, whereas, Freddie Mac allows 25%. For condo associations with less than 20 units, both agencies allow a single entity to have a maximum of 2 units and still be eligible for financing.

However, when someone owns too many units at one time, especially if that person has no intention of living there, it can lead to problems with financial stability. In addition, it could lead to maintenance issues stemming from not enough owners who are interested or willing to stay involved enough in order for things like regular maintenance work orders and budgeting decisions to get done properly

Financial Stability And Controls

Financial stability and controls are the next aspect to review. The condo association should have a plan in place for financial stability that includes:

A separate bank account for the association’s funds, specifically operation and reserve accounts.
Written policies on how to handle money, including how much can be spent, who has the authority to spend it, and how it will be reported to the board of directors.
Accounting books and other financial reports show how much money is coming into and going out of the association’s bank accounts. These should also show whether all bills have been paid on time.

Insurance Requirements

The insurance coverage requirements for a condo project are:

Building replacement/Hazard coverage
Fidelity/Crime coverage
General Liability Coverage of $1,000,000

To obtain approval from Fannie Mae and Freddie Mac for your condo project, we must assess whether the association has the required coverages/endorsements. A certificate of insurance or insurance policy for the association will be necessary to do that.

Commercial/Non-Residential Space

If your condo association has commercial space, it cannot be more than 35% of the total floor area of the entire square footage of the association. The type and uses for this space are limited as follows:

Retail use (such as a bookstore or coffee shop)
Office use (such as an accountant’s office)

LIVE/WORK

“LIVE/WORK” is an increasingly common feature in condominium projects. This type of arrangement allows you to have both a residential and commercial space within the same unit.

For example, you could set up your personal office in one part of the condo so that you can work from home while living in another area with your family.

Another potential use for LIVE/WORK is a fitness studio or yoga room where residents can work out during their commute!

Litigation

Condominiums involved in litigation can result in the condo association being ineligible for Fannie Mae/Freddie Mac, depending on the type of litigation.

This information will play an important role in determining your next steps in the condo review process.

It will need to be determined that the litigation is minor, or it could result in the association not being eligible for Fannie Mae or Freddie Mac.

Budgets

For borrowers with lower down payments (less than 10% or new construction condominiums), both Fannie Mae and Freddie Mac require associations to allocate at least 10% of their assessment income to their capital reserves for future capital repairs/replacement.

Consider big-ticket items for repairs like building roofs, siding, painting, pools, clubhouses, and mechanicals in high-rise condos.

Without this contribution, associations might not have enough funds to make those repairs without charging the unit owners an additional assessment, referred to as a special assessment.

These special assessments can be quite large on top of their regular assessment and will need to be evaluated for compliance with guidelines.

Conclusion

The process of obtaining approval for financing a condominium project is complex and requires extensive documentation.

The lender will require important information about the condo association, management company, unit features, and financial controls to ensure compliance with Fannie Mae or Freddie Mac guidelines.

Condo Approval Professionals are experts in understanding the Fannie Mae/Freddie Mac guidelines that drive the approval process.