good morning good afternoon good evening

wherever you are whenever you're listening

I wanna thank you for joining us

today on the mortgage mindset

my name is Hunter Boyd

I'm the director of sales for the Share Rihanna team

we are joined with by Chris Brazil

directive operations what's up dude

how are we all doing today

and we're good we're good

we are we're gonna

be talking about something that

we have seen more and more of lately

as we see prices increase

and people are looking for other forms of

of housing

other forms of the first investment property

and that is of course condos

the good the bad and the ugly that condos can be um

typically with condos

you see a lower price point on these things

depending on where you are in the world um however

you always have to you know

be conscious of the HOA dues and how that you know

affects your your monthly profits

profit and loss if it's an investment property monthly

just payment in general for a primary residence um

but these things have gotten harder to finance yes um

we have seen a lot happen uh since 2008

but even in the last couple years uh

in the news with with condos and

and that's really kind of made Fannie Mae

and Freddie Mac the mortgage gods that be

but also investors specifically

a little more skittish when it comes to these

so let's dive right in um

whenever you get a go under contract for a condo

a condo certification must be completed on the property

and it cannot be done by us

until you are under contract

um Chris

let's talk about condo certifications

what the heck are they man

they suck yeah

so they do yes

so yeah and the reason we can't get them before you

even under contract is

because

the information that's pertained within

the condo certification changes all the time

so what we're looking for in there well

which what the investors Fanny Mae

Freddie Max specifically are looking for in there

is the condo certification is made up of multiple

multiple items one of them is a condo questionnaire

and I'll kind of get into that in a minute

but also we have to get the insurance policy

the blanket insurance policy

for the whole condo community

so the HOA does have to carry an insurance policy

because if you buy a condo

the homeowners insurance that you're buying for

that is what we call in the Business

Walls Inn meaning that it only covers what's inside

the actual unit itself now

the HOA company

is responsible for getting a general insurance policy

for walls out

which includes the building

the roofs the exterior

the sidewalks things like that

basically

all the land and everything surrounding the buildings

that is owned by that condo community

so that's one of the aspects on us

we need to make sure that the

HOA company is holding sufficient insurance

the other thing we need to look at is the budget

we need to make sure that the HOA is run properly

and

meaning that the people that are in charge of the HOA

they you know

have annual meetings and they set a budget in place

for the following fiscal year

and so we want to look at that budget

make sure that they are spending their money wisely

and so that all that information is required

once you're under contract

because part of the condo questionnaire

does ask about investor concentration

and asks if anybody is behind in their HOA dues

um they ask

you know has there been any damage to the property

or anything like that so you can't get it proactively

because something can change

if you don't buy for 30

60 days and within that time frame

let's say that people have stopped paying their dues

in that time period

then that condo questionnaire is outdated

let's say a tree falls on one of the buildings

you know

then that condo questionnaire is outdated and we

it causes a problem and so

we have to get the most up to date condo questionnaire

so just for a timeframe perspective

just so you're aware of how it works

you go under contract um

we lock in your loan we disclose your loan

part of that disclosure package

has the intent to proceed

which means that we're allowed to do

business on your behalf

as the buyer in that condo community

which allows us to go

request the condo docks that we need

and so that's why we had

we can't do it until you even sign the disclosures

for us as a borrower

and so we take that intent to proceed

meaning

that you are allowing us to do business on your behalf

purchasing a unit in that condo community

which allows us to request the condo

documents from the HOA company

and so we do that is it's the very first thing

it's almost like ordering an appraisal

you know we all know when you buy a single family home

the first thing you

we wanna get done is get the appraisal ordered

well on a condo

it's ordering the appraisal

and ordering the condo docks

and so

it's almost like a mini underwriting on the community

that's right like

you know the bar goes to underwriting on the loan

but before we even go through that process

or maybe at the simultaneously

we wanna get an underwriting done on the community

itself that's right

cause condos are unique

in the aspect that

you're intertwined with everybody that owns a unit

within that property yeah

and so

it's not like you're just buying a single family home

even if there's an HOA on that house

you still are your own entity

you have your own house sitting on its own land

even in the townhouse

you're separated by a wall but you know

you own that

that section of that building in the townhouse

on a condo you're all intertwined with the HOA company

and so if somebody stops paying dues

it affects the whole community as a whole

because then the budget collapses

and they don't have money to fix sidewalk cracks

and things like that

and so it's just in the mortgage world

it's an extra risk layer

that has to be part of the equation

when we're looking to finance a condo community

yep

yep so a couple years ago

we saw a condo actually like hit the news man

collapse just boom um

in Miami um

talk about like how that's affected loans today

like obviously you know

when we do these kind of certifications

they're gonna be looking for um

when the last renovations were

were done on the property

you know how well is the property maintained

deferred maintenance is a big thing that we see on

on condo certifications and a lot of times if the

the verbage

deferred maintenance is on that certification yes

a lot of investors say hell no yeah

that's it that's a that's a big uh

put the stop sign up

or we're coming to a screeching halt yeah yeah

yeah so talk about um

how that's affected and what you've seen personally

in condo certifications from that yeah

absolutely so you know it was a horrific story you know

not only

you know what a condo community collapsed you know

unfortunately people lost their lives

other people lost their homes

lost their personal belonging

so it was a horrible accident

and horrible situation all around

how it directly affected the mortgage world is that

you know and I

I don't mean to sound crass or anything like that

but this is just the way that Fannie Mae

and Freddie Mac look at things

every unit in there

that was financed with a conventional landing

Fannie Mae and Freddie Mac lost that loan um

unfortunately Fannie Mae

and Freddie Mac

are not in the business of losing money um

so when they lose a loan there have no

they can't recoup their loan

which is by the property that is uh

the lean is on for that home

cause the community was gone

and so so basically Fanny man

Freddie Mac lost out

when they lose money they're gonna change things

how they do things

so what they did was they implemented new

it took a couple years

but they're fully in place right now

where they implemented new guidelines and said

if you want to use conventional financing

to buy a condo you're gonna have to follow these rules

and so with that um

the condo pack became a lot thicker

let's say

is a lot more paperwork involved in that and also they

in order for the condo communities

to allow for conventional financing

they need to have a structure engineer out there

now and make sure that there is structurally sound

no cracks in the foundation

things like that and so

a lot of condo communities have had to go through

the process of getting that done

and with that being said

it also raised the level on the ability to lend

on these communities

meaning that it has to be on the up and up every

it has to check every box in that condo questionnaire

so if you know

hunter had mentioned deferred maintenance

if they if that roof is

you know 30 years old

and it's gonna need to be replaced in a year or two

Fanny Mae and Freddie Mac doesn't wanna touch it

until that roof is replaced

yeah um

little things like that that need to be done

and so they basically it used to be in the

before that um

that condo building collapsed

you could do a limited review

which was basically like

you're almost picking up the phone and calling the HOA

manager and getting some information from them

and we're moving on that was

if you're buying a primary residence in a condo

putting like 20% down

a limited review was all that was necessary

it was literally one piece of paper um

now it doesn't matter

if you're buying a primary residence

one 50% down you're gonna have to get a full condo dock

yeah full condo package

and so Fannie Mae and Freddie Mac said that we need to

we fully need to underwrite this condo community

this condo building and make sure that we are

we feel confident enough to lend money

on this particular property

and so in this area you know

it's kind of funny cause people say

you know oh

it's just a two story condo

you know why are we doing

going through this

if anime and Freddie Mac land across the country

and it's

it's almost like during the housing crisis of 2008

2,010 you know

people come to us they say well

you know I could pay for this house in cash right now

well if you want a mortgage

unfortunately it doesn't matter

you have to follow the rules no matter what

and that's what's going on with condos now where um

you know they land all across the country

and so there's high rise condos in places like Miami

in places near the beach near the ocean

things like that

this high rise condos all over the place

in big cities and things like that

and so even though it's a two story

quote unquote condo

we still have to go through the same rules

regulation guidelines that fan you made

Freddie Mac put forth so

what we're getting at with that is that

there's a lot more due diligence as

to be done up front from us as lender and

you know maybe from you as a borrower

um just ask more questions of the listing agent

if you can get a hold of an HOA manager

ask them flat out

do you think that this property would be

I'm able to be financed through conventional loans

or have they has there recently been has a recently

yes that's been financed yeah

conventional think you know

relying on their knowledge of the community as well

is gonna be helpful that's it exactly yeah

you wanna ask more questions

yeah

cause it's not just a matter of the unit you're buying

since you're all intertwined

you're connected to the person

who's the farthest away from you

the farthest unit cause

if that particular person hasn't paid their condo dues

or they let their you know

if they walked away from their house and let it go to

you know let it go to shit

so to speak you know

it's gonna affect the community as a whole so you know

that's how you're intertwined with everybody

and you need to know what's going on

not just with your particular unit

could be the best unit in the community

and there was just renovated

looks beautiful but unfortunately

you need to know what's going on

with the whole community

in order to be able to get financing there

you got it you got it

and last thing

we want to bring up is investment potential for condos

obviously there is it's great potential there

but the 2008 effect of mortgages not being paid yes

specifically with condos we in general

we saw a structure change between

more significant changes

between primary residents and investment property

after 2008 because investment properties

and second homes were the first homes

not to get their mortgage paid yes

that is correct um

but even more specific with that condos

condos have the added layer of generally uh

higher than average HOA DOS uh huh

uh for homes and so that was even uh something more uh

to add to that and

and layered in there that wasn't getting paid

which brought up things like deferred maintenance

which brought up things like turning

people turned over the condos back in

talk a little bit about that yeah

so in in

I reference Florida quite a bit

because Florida does have a big condo community

and so and also during that time frame

Florida had a beach yep

that's right

and Florida had a ton of investors buying in that area

because there was a lot of appreciation

so it was twofold

so they had investors coming in buying condos

and they had a lot of condos that were being financed

and so when that happened

when the housing crash hit

and people were literally

just leaving their keys on the counter

and walking away because like you said hunter

second homes and investment properties are the

if people are having a personal economic crisis

they're gonna walk away from the house

they don't live in first

so that investment properties gone

second homes gone

and so when people stop paying their mortgages

the first thing they stop paying is HOA dues you know

they're gonna stop paying their HOA dues first

then they're gonna stop paying their mortgage

then they're gonna let the home go into default

it's just unfortunately how it works

when the HOA isn't being paid

that budget that they sat down

and everybody in the HOA on board

that they set forth for that fiscal year

it's out the window because

you set the budget based on the fact that you're gonna

be collecting the HOA dues

throughout the year yeah

and if more and more people don't pay their HOA dues

you're not gonna be able to clean the gutters

on the building you're not gonna be able to repaint

you're not if if somebody runs her car and do a

you know a fence or something like that

you're not gonna be able to replace it

cause you don't have the money in the budget

because people are not paying their HOA dues

and so that kind of LED into where

if you are an investor buying a condo

it's even harder than

if you're buying it as a primary residence

just be aware of that

so if there's people in that condo community that

you know if there's a

a saturation of investors already in there

you're not gonna be able to get conventional financing

on it um

if one entity or one person owns you know five

six seven units within that property unfortunately

you're not gonna be able to get conventional financing

in there because if that person defaults

they have a chunk of that condo community

that the dues are not being paid

so make a long story short

that's why it's harder on a condo

you know it's good to know the background

and also the reason why Fanny Man

Freddie Mac have made it a lot more strict to uh

land on these types of uh

of homes but that is there

that is the rationale behind it

yeah and to that point of of

you know

those potentials not being a warrantable property

at the same time

when you're talking to that listing agent

when you're talking about the seller of eight

whoever runs HOA and you

if you got access to them on the phone

um

ask them was the was the person who bought recently

a primary buyer or an investor

because hey we've seen where a non

warrantable conduct has come back

warrantable on a primary residence

where the didn't

because it went out on an investment property residence

and that's

because the primary bar was helping to better

that ratio of investor to primary units

um so you really just need to dig a little bit further

uh condos

sometimes

get the wrap of being very similar to a townhouse

and on a uh guideline

mortgage guideline point of view

they're just totally different beasts

yep townhouse is a single family

home and from our perspective

and a condo sits on its own little island

entity off to itself and so just you know

and don't be scared of it

you know

I just a lot more due diligence is gonna be needed

be done by borrow or the realtor

and us as the landing partner

all of us coming together

and trying to figure out a solution

there are avenues to land on these

whether it be conventional conforming

maybe we have to go the non qm route

which if you you know go back a few episodes

and you'll see us talk about the 9QM loans

um but it's worth a conversation

don't just get scared and walk away

just because it is a condo

it just means that we need to start having a bigger

deeper conversation about the pros and cons

yeah education not fear

there you go that's it

that's awesome look

thank you for joining the mortgage mindset

my name is hunter

you've been joined today by Chris Brazil

if you found this useful if you found this educational

we'd love to help out more

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