The Federal National Mortgage Association (FNMA), commonly known as Fannie Mae, is the benchmark for cooperative and condominium unit loan qualifications. Unit owners who are attempting to sell their apartments may find that their prospective purchasers are encountering difficulty in obtaining a mortgage if their property is not approved by or eligible for sale to Fannie Mae. When these unit owners have difficulty selling their apartments, they turn to the board who then in turn find they must obtain a crash course in the Fannie Mae guidelines. These guidelines are published in Fannie Mae’s “Selling Guide” which is prepared for Lenders. To understand why these issues have arisen, it is important to understand that Fannie Mae and Freddie Mac originate 90% of the end loans obtained by unit owners. Freddie Mac’s guidelines are more difficult to meet, however, Fannie Mae buys substantially more loans. Therefore, Fannie Mae has become the traditional association that most properties need to be concerned with. The key to a successful investment is understanding and communication to ensure that your board does not receive the worry that the property is not Fannie Mae qualified and an important mortgage commitment or prospective sale is about to be lost.
At Czar Beer we are well-versed with the requirements and available to work with you to avoid qualification issues in advance. The Fannie Mae Selling Guide provides details for some common eligibility requirements. Remember that a property’s qualification will rely on the building’s eligibility and eligibility is not on a unit-by-unit basis. Common eligibility requirements and issues for cooperatives include: 51% of the units must be first or second homes. 90% of the units must already have been sold to purchasers, unless the property is in the initial “sell out” period. Control of the board has been turned over to unit owners. For new projects, a Certificate of Occupancy must have been issued. The property’s operating budget must be adequate. If the property has not done a study of the useful life of building components, 10% of revenue in the budget must go to reserves. The budget must include a provision for all insurance deductibles. No more than 15% of units can be more than 30 days in arrears. Other than the initial marketing period, no one can own more than 10%. If professional management is in place, any cancellation clause for the management contract must be ninety days or less.
The Federal Housing Administration (FHA) Approved Condominium List can be found at: https://entp.hud.gov/idapp/html/condlook.cfm