Investor · Denver, CO · Member since 2009 · 9 posts · 3 votes
My condo is an HOA that is suddenly non-warrantable for conventional financing. To save money, management raised the wind and hail insurance deductible from 5 to 10 percent. That exceeds the 5 percent max allowed by Fannie Mae, at least in Colorado.
I've been told the higher deductible also effectively killed FHA financing. (This HOA was not FHA approved, but now even single-unit "spot approval" is no longer possible.)
Who has dealt with this misfortune anywhere else?
Where can I see (in writing) the max allowable deductibles - both for conventional and FHA? I've heard different stories.
Is FHA truly out of the question now? Or could someone to get FHA spot approval?
Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
1y
Here is a link to the FNMA guidebook. They're publicly available via a quick google search. Also, keep in mind that some lender may have overlays that are more restrictive than the FNMA/HUD guidelines, meaning the lender's internal condo guidelines require more than FNMA/HUD. This typically comes into play with big banks (Chase, etc) who are buying the loans to place them on their balance sheet. I know for a fact that Chase has an internal condo approval process for all loans being sold/brokered to them.
Long story short, condos are becoming increasingly difficult to finance. I just had to fight tooth and nail to close a VA condo purchase for a client with a POA that was actually fairly well run, relatively speaking. As insurance woes grow over the next couple of years, I dont see this improving.
Lender · Charleston, SC · Member since 2019 · 1k+ posts · 1k+ votes
1y
Here is a link to the FNMA guidebook. They're publicly available via a quick google search. Also, keep in mind that some lender may have overlays that are more restrictive than the FNMA/HUD guidelines, meaning the lender's internal condo guidelines require more than FNMA/HUD. This typically comes into play with big banks (Chase, etc) who are buying the loans to place them on their balance sheet. I know for a fact that Chase has an internal condo approval process for all loans being sold/brokered to them.
Long story short, condos are becoming increasingly difficult to finance. I just had to fight tooth and nail to close a VA condo purchase for a client with a POA that was actually fairly well run, relatively speaking. As insurance woes grow over the next couple of years, I dont see this improving.
Rental Property Investor · Broomfield CO and Estes Park, CO · Member since 2017 · 52 posts · 45 votes
1y
I've had this discussion with multiple lenders recently. I am an insurance broker in Colorado and can confirm that most insurance companies are increasing to minimum 8% deductibles on most condos. Although it does reduce the premium slightly for that particular rating factor, it is not optional on the part of the HOA as an intentional cost saving measure. It also doesn't typically mean the overall premium goes down, as the other rating factors are increasing more and this tiny decrease is lost in the overall total. This is a new underwriting guideline of the insurance companies because they haven't been profitable and must raise the rates and lower the risk factors in order to comply with state regulations on adequate reserves and future solvency. In Colorado specifically, we're also losing a lot of options due to an increase in our wildfire risk scores in many zones. Bottom line, be thankful that you’re able to find coverage at all, because some properties can’t. And if you’re lucky enough to be with the few carriers who haven’t yet increased the deductibles, pay the higher (than last year) premiums for now (because you won’t find anything cheaper elsewhere and certainly not with the lower deductibles) and keep that option for one last year, because it will likely switch next year for you. Your company is just slow to file their updates, which in this case is in your favor. Maybe by next year the lenders will catch up and update their guidelines to allow for what is available in the marketplace right now.
@Kristine Hodges is right about why this is happening. And this is happening more and more often. My wife is a mortgage broker and she is seeing a scary rise in condos that are becoming unwarrantable. Lenders are reaching out to Fannie Mae and Freddie Mac to have the minimum increased, since this is an issue that will not go away as insurance companies raise premiums to stay profitable, and HOAs try to avoid paying higher premiums by increasing the deductibles (or sometimes they need to do both to afford a policy at all).