Purchasing a condo should be a safe investment, in terms of your personal and financial health. When a Surfside, FL condominium collapsed in June of 2021, the Federal Housing Finance Agency began to ask for more information about the structural integrity, maintenance, and finances of condo complexes. FHFA has guided Fannie Mae and Freddie Mac to update project review requirements, and lenders are now required to implement these new policies as of mid-September. The main objective is to help lenders identify projects that may have issues that result in unsafe conditions and to promote sustainable homeownership. If you are searching to purchase a condo with a conventional loan, these new policies are intended to protect you.
Fannie Mae announced, “Projects with critical repairs or deferred maintenance can lead to unsafe conditions, uninhabitable homes, and financial hardships for homeowners. We introduced temporary requirements in LL-2021-14 to address projects with significant deferred maintenance and special assessments. Effective Sept. 18, 2023, our requirements addressing critical repairs and special assessments will be incorporated into permanent policy for condo and co-op projects with five or more attached units. Condo Project Manager™ (CPM™) will be updated the week of Sept. 15 with new data elements related to required repairs, deficiencies, inspections, and assessments.”
The new requirements that apply to all conventional condo loans are:
- Condo projects must be certified as “Project Certified” by Fannie Mae or Freddie Mac. This certification means that the condo project meets certain standards, such as having a healthy reserve fund and adequate insurance coverage.
- Lenders must review any structural and/or mechanical inspection report that has been completed within three years of the loan application date. This is to help identify any potential problems with the condo project that could affect the value of the unit.
- Mortgages are not able to be sold to condominium or cooperative projects with current evacuation orders due to unsafe conditions.
Condos must now meet certain criteria to be “Project Certified,” such as:
- Having a reserve fund that is equal to at least six months of operating expenses
- Having adequate insurance coverage
- Having a homeowners association (HOA) that is in good financial standing
Over the last four months, 20% of our branch’s originations have been for condos. More buyers are looking for condos, in terms of affordability and included benefits. We believe these new condo requirements will reduce the risk of defaults on condo loans and protect borrowers. Although it creates more due diligence on our end, and some condo complexes will not achieve the required status, the effort to identify and crack down on aging condo projects will protect homeowners and the community. In Longmont, for example, there are already nine “Project Certified” condo complexes, and we expect more complexes to be vetted and added.
Contact us if you’re shopping for a condo, and we can let you know which condo complexes are already certified.