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Tighter rules for some borrowers

By Polyana da Costa · Bankrate.com
Tuesday, October 16, 2012
Posted: 1 pm ET

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.

Self-employed

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?

Follow me on Twitter @Polyanad.

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10 Comments
Jessica Smith
November 09, 2012 at 7:03 am

Borrowers looking to buy into those properties, they will be unable to obtain FHA-backing and likely need more in down payment.
Condo Reserve Studies

June Kahlert
October 18, 2012 at 3:11 pm

I have lived in a condo for 28 years. Unit owners took the assoc to court mauybe 15 years ago to just be able to see the financial records of the association and lost the case. The manager was connected politically here. What happened was we have paid since in higher condo fee rasises 6 times. The assoc mgr owns many units here and assoc meetings and fair elections are not part of his functioning over all the years I have lived here. He is approaching 80 and needs to go. If this happens in NJ for new condo loans, one will never sell here again. Wish I could do something about it.

Tim
October 18, 2012 at 2:23 pm

Brokers don't make loans. They feed loans to the lenders based on the guidelines provided to them. Lenders such as WaMu had account reps promoting "Liar" loans and other risky products to their broker customers.

That's not to say there weren't brokers (or lenders) committing fraud by altering documents, appraisals, etc.

JohnF
October 18, 2012 at 1:48 pm

The condo rule of 20% down is nothing new in Florida. The lender guideline here is 25% down and financials are not needed from the condo association. Most if not all lenders require a minimum 20% down anyway, with most condo associations also requiring a minimum 20% down as well.

V. Barnes
October 18, 2012 at 1:37 pm

The condo association requirement is just good common sense. Even the author makes that connection. As for Shipp's comment about Broker channels,it was the unregulated un Bank affiliated sector (BROKERS) that was the major unregulated culprit of the housing bubble coplapse. It was unregulated Brokers that promulugated no doc loans, or as persons with your mortgage knowledge level and general understanding of banking probably labeled, liar loans. Get it through your heads, that rubber stamp style of lending done by the Brokers you seem to admire went away justafiably.The rules did exist. Unregulated Brokers, giving you those undocumented loan approvals fed the frenzy. The regulators have to take some of the blame, as well as regular citizens, that n=knew their self employed income likley wouldn't cover that half million dollar mortage. To return to that type of lending or a housing market based on that type underpinning is just inviting the same collapse to occurr again. What will make the housing market come back legitmately is STABLE JOBS and the public's comfort and perception of same. There will be no quick fixes for the abuses .

Jim
October 18, 2012 at 1:31 pm

I agree with Don that the banks are killing any chance of recovery. My wife and I attempted to finance a house for our daughter and we both have credit scores above 800. Problem is we are self employed and to make matters worse we are pawnbrokers. Banks have no idea about this industry and the good fortune that comes with buying gold. After being turned down we asked if we put down $80,000 would they finance the balance of $20,000. The answer was no, hence we are paying cash in full.

Don Sullivan
October 18, 2012 at 1:10 pm

The banks are beholden to no one and THEY are the ones killing the housing recovery... as well as the appraisers who only answer to them and for whose shoddy work the homeowners/sellers suffer.

K. Shipp
October 18, 2012 at 12:02 pm

This is all driven by the banks need to take the business out of the hands of the broker channels. It used to be that 80% of the business was handled through brokers. Try to get a loan closed in thirty days to meet the requirements of a sales contract. The bank has no sense of urgency and closes nothing on time, leaving you to clean up the mess.