Real Estate Investor · Mesa, AZ · Member since 2014 · 73 posts · 24 votes
Two days before closing my lender advises that neither FNMA nor FMMC would buy my loan. Only financing 70% of appraised value. 81 of the 86 units are non owner-occupied so they didn't want it. Non-warrantable.
Of course I'm out the $500 appraisal fee and $150 for some condo cert or something. Seems like the lender would have known up front that Fannie and Freddie didn't buy that paper.
Should the lender have known or are the guidelines constantly changing? (Their story)
The lender should have checked on that as pretty much one of the first things when considering the property. Some times it takes things like this to come up as learning experiences though. Guidelines are changing, but that rule about the condo owner to renter ratio has been around for a while now!
Understanding conventional loan guidelines is so important. It's one of the first things I focused heavily on learning greatly, and it's been very rewarding having that knowledge.
The lender should have checked on that as pretty much one of the first things when considering the property. Some times it takes things like this to come up as learning experiences though. Guidelines are changing, but that rule about the condo owner to renter ratio has been around for a while now!
Understanding conventional loan guidelines is so important. It's one of the first things I focused heavily on learning greatly, and it's been very rewarding having that knowledge.
Did you have an agent? It seems the lender should have been able to check that first. Do they have any non-FNMA/FMMC funding available?
Yes, we had an agent. He owns properties in the same complex. His wife is on the HOA board. Hence the questions. I had planned to use this agent for several more purchases this year but am now having second thoughts.
Financing is out there but hard to find and expensive. These properties will cash flow but higher rates cut deeply into that. The plan was to pay these down quickly but this really inhibits one key exit strategy.
The lost money is one thing but I'm more disappointed in the entire 'deal' than anything else.
Did you have an agent? It seems the lender should have been able to check that first. Do they have any non-FNMA/FMMC funding available?
Yes, we had an agent. He owns properties in the same complex. His wife is on the HOA board. Hence the questions. I had planned to use this agent for several more purchases this year but am now having second thoughts.
Honestly I would fire your agent. He cost you $650. With that high an investor ownership and his involvement there is no way he didn't know financing would be an issue. If he was outside of his typical area, I might be a little more inclined to give him the benefit of the doubt.
Yep, he's gone. 81 of 86 units investor owned. I thought that a professional realtor that 'works with investors' and owns many condo himself would know that.
My presumption is that he was trying to sell this one in that complex to set a new comp level for his own properties. Of course that's just my skeptical opinion :)
@Kelley B. Your agent should have directed you to the proper lender and disclosed the non-warrantable status. Your lender should have investigated that right away when they were provided the HOA due diligence docs. Non-warrantable condos are not a scary or difficult thing to purchase, own, or sell. I own one. There's no reason for this deal to have gone south. I use credit unions or small local banks for every condo purchase even when they do meet FNMA guidelines because the process is always simpler and I have less issues in final underwriting. I'm sorry you had to learn this the hard way but don't let it scare you off, instead let it motivate you to find the right team. Not sure if all these are in AZ but talk to any credit union that you are eligible to join, Vectra Bank, First Bank, Key Bank, and Bank of the West. There are probably more in your local area.
Not knowing the full background, did you have a frank and honest conversation with your Realtor about what your goals where? Did you talk to the loan originator about your goals before you went through the process?
If everyone on your team doesn't know what your goals are, then you are going to be spinning your wheels around and around and around. I learned this the hard way too when I was first starting out. Then I discovered by having these frank conversations and laying out my expectations and goals, I either was brought back to reality, or that things moved quicker and better.
Agreed. Lessons were learned here. Detailed conversations were held about our goals. We were 'encouraged' in the condo direction and I'm still OK with that. Just expected more. Had I done this all myself, I would own it 100%. Bottom line is that I dropped my guard and didn't do the due diligence. No hard feelings. Just another small scar from the school of hard knocks!
I agree, an agent who lives in the complex and sits on the board should know what the level of owner occupancy is and how that would affect a buyer's financing.
My presumption is that he was trying to sell this one in that complex to set a new comp level for his own properties. Of course that's just my skeptical opinion :)
When did he mention he owns properties there and his wife is on the HOA board?
I ran into this when I first moved to Houston in 2002 and found a townhouse I really liked. I can't remember how, but I found out that the bank would charge me a much higher interest rate because the owner occupancy rate was in the low 50's, and they wanted to see at least a 60% owner occupancy rate.
Anyway, between the higher rate and the HOA fee, I figured out that my monthly payment would be about the same as if I bought a house. So I backed out of the deal and have had a bad taste for condos since.
Did you use a mortgage broker? When I was in the process of buying my rental townhouse, my loan officer immediately told me that lenders will look at the owner vs non-owner ratio. He asked me if I knew the area and how many is owner occupied. Of course, I didn't have the information so he sent out the condo questionaire which is required by the lender anyways. He told me that condo questionaire takes a long time to get back usually few weeks.