Financing in Harrisburg>Question Details

Jeff, Home Owner in 17111

Despite having 10.1% equity, credit scores greater than 740, proof of insurance, etc., I was denied mortgage insurance on my condo. What should I do?

Asked by Jeff, 17111 Wed Mar 2, 2011

I filled out all the paperwork accurately, the lender had a professional appraiser come out, the loan was approved and I have 10.1% equity, I increased my condo insurance to the appropriate levels, the master insurance policy from the homeowner's association was given to the lender and it shows sufficient, active coverage, I'm paying for closing costs upfront, no cash out and I'm refinancing with a 7/1 ARM. I was told FOUR mortgage insurers denied coverage based on i) "a high level of delinquencies of Homeowner's Association dues" by our NEIGHBORS, and ii) additional phases are left in the neighborhood, thus our condo is "non-warrantable". I estimate our development is 70% sold (at least). I've also asked the mortgage company to provide me with the rejection letters from the mortgage insurers. What else can I do? I've thought about putting the other 10% of equity in to avoid mortgage insurance, but now the lender is saying they will not extend the loan to us. Help!

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Jeff, do you know how many of the condos are owner occupied vs.rental units? Are there many empty units? When you say delinquencies on HOA dues how does the balance in the HOA account look? All of these can cause the insurers to deny from what I hear. The high amount of risk and defaults are what they are looking at . Remember this insurance is totally different than homeowners insurance as it is insuring the actual mortgage against default. Vacancies, and risk for future mortgage defaults can cause the value of your unit to drop should some who cannot pay the HOA fees and say have their unit foreclosed on. Funds going into the HOA are typically used for things like roof repairs sidewalk repairs, care of common areas, driveway repairs, and anything covered under the condo agreement. If the balance falls below a certain level they are concerned that necessary repairs will not be done and thus the units deteriorate in time. Not a reflection on you but the risk factors dictate what the insurers are willing to insure. The industry has been taking a beating all across the country due to the high number of foreclosures and folks just walking away from their homes. Yes, actions far away from your location do come back to bite us all in the behind I am afraid. Not much you can do. Yes, I suppose you could pay into your mortgage to eliminate the insurance but that may not guarantee approval due to all of the concerns noted. I would also be concerned about the future saleability of your condo also. I have encountered some condo units here in the Carlisle area that are very hard to find anyone willing to write mortgages due to high rentals vs owner occupied.
0 votes Thank Flag Link Wed Mar 2, 2011
That is unfortunate

But Condo's must be FHA certified these days.

As yo mentioned the high level of delinquencies for HOA and the number of investors, non owner occupants, makes Condos, non-warrantable.

it may be unfortunate that you can not refi your condo.

Have you thought about selling?

Best of Luck
0 votes Thank Flag Link Wed Jun 6, 2012
Hello Jeff,

When a condo complex is denied for whatever reason, as a loan officer there is very little that I can do other than to switch to a non warrantable program with 25% down.The only thing I can suggest is to find out who is completing the condo questionaire (either the homeowner association or the management company and let them know what is happening. That way they can maybe take care of the delinquency issue and get an MI approval. For FHA less than 15% delinquencies are required. I have attached the guidelines below. I know you are going with a conventional loan but the rules are similar.Also ask them how they are interpreting delinquency. I had one association manager counting one day late when they had just switched management companies and half the checks went to the wrong place. Another option is to get lender paid mortgage insurance.

Best Regards,
Alan Openshaw
Cornerstone Lending Inc
720 Second St Pike Suite 104
Southampton Pa 18966
Office 215 953 0800
Fax 215 953 1706
Cell 267 992 7276
Voted Best of Bucks 2010
0 votes Thank Flag Link Thu Mar 3, 2011
Dang, Jeff. I feel for you.
0 votes Thank Flag Link Wed Mar 2, 2011
Jeff,
If your only option is FHA (sounds like it is) you should consider the FHA 5 year ARM. The great thing about the FHA ARM, compared to a conventional 5 year or 7 year ARM, is that it is far less risky for several reasons. First the initial adjustment cap is only 1% above your initial rate, compared to 5 or 6% for most conventional loans. Second, the yearly adjustments after that are only 1%, compared to 2% on conventional. Third, the margin that is used to compute the adjustments in the future is 2%, compared to 2.5 to 3.0% on conventional. Under most scenarios, the FHA 5 year ARM will end up with a lower average rate over time than a comparable 5 or 7 year conventional ARM. Its worth checking out.

Ed Fallon, MBA NMLS#144708
Arlington Capital Mortgage
CELL: 610-308-9001
0 votes Thank Flag Link Wed Mar 2, 2011
Thanks for the responses so far everyone. Hidden in my long winded scenario I mentioned I am refinancing. Sorry, I should have made that more clear. So Mack and Elva, I'd take your advice if I didn't already own my condo.

David, according to the FHA website it says "Status Approved" for these condos. I'm trying to work with the lender but I fear the person I'm working with is junior, so I'll have to move up the ranks to get more info.

Bill, thanks for the response. I contacted the builder earlier today to get more details on the HOA dues that are delinquent, no word back yet. I'll try to get a handle on the other items you mentioned.

I'm just frustrated. I planned on refinancing to a lower rate, but intended to keep paying what I pay today...and I pay ahead. In only 16 months I would have 20% equity and no need for MI anyway. I'm worried we won't be able to sell in the near term (3-5 yrs), so refinancing made a lot of sense so we can chip away at the loan. Ugh.
0 votes Thank Flag Link Wed Mar 2, 2011
Hi Jeff,

You should check if the Condo you are purchasing is FHA Approved.. Last year all Condo Associations were required to re-certify their eligibility for FHA financing. You should speak with your lender or another mortgage professional regarding this denial.

If you are a current homeowner, this should be brought to the Condo Board immediately. If you are considering a purchase in the building, you might consider purchasing in a Complex that is more secure in their finances and lower delinquency rates. Ultimately, the Condo owners of the building are going to pay for the delinquencies of the owners who stopped paying.

Best of luck,
David Jaffe-SRES, CDPE
Realtor-Coldwell Banker
0 votes Thank Flag Link Wed Mar 2, 2011
Hi Jeff,

I agree with Mack. I think you should find another condo because you risk further price reductions if it is too difficult for the average borrower to secure financing in this project.

Best wishes,

Elva Wormley
Cobalt Financial Corporation
(408) 615-8500
0 votes Thank Flag Link Wed Mar 2, 2011
Try calling Eddie Kirby at Guaranty Mortgage. His phone numbers are:
Office: 706-321-1550
Cell: 404-202-7493

Let me know if I can help you in any way!

Sandi
Web Reference: http://www.sandigreen.com
0 votes Thank Flag Link Wed Mar 2, 2011
Jeff, what you should do is go find another condo.

All the best,
0 votes Thank Flag Link Wed Mar 2, 2011
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