Condo buyers and self-employed borrowers may soon have to jump through additional hoops to get a mortgage as Fannie Mae tightens underwriting standards.
Starting Oct. 20, borrowers who put less than 20 percent down on a condo will have to provide documentation to demonstrate that the homeowners association is financially stable. Fannie currently requires the info for buyers putting less than 10 percent down. The documentation includes a reserve study to show that the association has enough cash saved for emergencies, a request for proof that the association has adequate insurance and a questionnaire detailing the association's finances.
No matter how good a credit history you have, if the association of the building you are buying into is perceived as financially risky, your mortgage deal is dead.
On the other hand, why would you want to buy a condo in a building that has financial issues? If you are thinking about buying a condo, here are a few things to consider.
The latest underwriting changes will also affect borrowers who are self-employed or receive most of their pay based on commissions.
As of Oct. 20, self-employed borrowers will be asked to submit two years of personal tax return when they apply for a mortgage. Currently, borrowers need to provide tax returns for the most recent year.
The requirement can be an obstacle for borrowers who earned enough to qualify for a mortgage in the last year or so but went through financial difficulties in a previous year.
Fannie claims the tighter standards are needed to minimize its risks. What do you think of the changes?
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