Fannie Mae, or Fannie (Freakin') Mae as it seems to be known as these days, has upped the ante on financing new condo conversions. Now, getting a 'Conforming Loan' on these condos will be even harder than it was already. If you recall, Fannie significantly raised the restrictions on condos just a year ago following the bailout.
NEW CONDO CONVERSION, What is it? Fannie Mae is not referencing new construction with the new restriction, it is addressing older property that was a multi-family and was converted into condos. For example, you go out and buy a 3 family home and decide to sell one, two or three of the units. You have a new condo conversion. However, if you do a gut renovation before selling then Fannie says you have new construction.
THE NEW REQUIREMENTS
Â All projects are subject to a site inspection
Â All rehabilitation work involved in a condo conversion must have been completed in aÂ professional manner
Â A current reserve study prepared by a qualified, independent professional company,Â accompanied by an engineer's report, or functional equivalent, must comment favorablyÂ on the structural integrity of the project and the remaining useful life of the major projectÂ component
Â The project budget must contain line items for 1)reserves to adequately support the costsÂ identified in the reserve study and 2) a utility contingency of at least 10% of the previousÂ year's utility costs if the utilities are not separately metered
Â Funds to cover the total cost of any items identified in the reserve study or engineer'sÂ report that need to be replaced within five years from the date of the study must beÂ deposited in the HOA's reserve account, in addition to the amount stated immediatelyÂ above
Â The developer must provide a detailed description of the work proposed or alreadyÂ completed in order for the project units to be ready for sale
Â Generally, at least 70% of the total units in the project or subject legal phase must haveÂ been conveyed or be under a bona fide contract for purchase to owner-occupant principalÂ residence or second home purchasers. (Fannie Mae may consider a more flexible presaleÂ percentage on a project basis)
Â Up to 30% of the units in projects that are subject to rent regulations, which protectÂ tenants from eviction (if they have chosen not to purchase their unit), will be permitted
Â Phasing of projects (single building or multiple buildings) will be considered on a projectÂ basis.
Â The project sponsor or developer must provide a comprehensive sales and marketingÂ strategy
Seems the general strategy of the fed is to make sure that these new condo conversions are of a certain build quality. New construction, or gut rehab, will have to be inspected by Town Inspectors before work is allowed to continue. This attempts to close a loop-hole that is left when multi-unit buildings are flipped into condos where building permits would not be needed.
If you are buying a unit that is a new conversion, make sure to give the proper amount of time to close. Getting through this checklist is sure to be time consuming.