Borrowing money has become more difficult for condo buyers. Mortgage lenders, such as Fannie Mae and Freddie Mac, are applying stricter criteria and requesting a higher house deposit in light of higher mortgage foreclosure rates. Whilst condo mortgages are still available, buyers are finding life more difficult than other categories of house buyer.
Why is There Now Tight Criteria for Condo Mortgages?
According to CBS News, mortgage foreclosure rates were up 82% in 2016. That equates to 18.4 foreclosure per 1000 households. Mortgage lenders have identified that house payments on condo mortgages have the highest default rates.
Peter Milewski, an official at MassHousing, stated: “Condos are considered more problematic to lenders because a few foreclosures can affect property values for an entire complex. They carry monthly fees and special assessments that can create massive collective debts if individual unit owners fall behind on payments.”
Condo Buyers Face a Higher House Deposit and Charges
The higher associated risk with condo buyers means that mortgage lenders have tightened their criteria. In order to be accepted, most banks now require a minimum house deposit of at least 20%. This is because a number of insurers will no longer provide coverage to banks offering condo mortgages.
Fannie Mae and Freddie Mac are charging condo buyers a surcharge equivalent of three-quarters of a percent of the loan value. In order to avoid this additional charge, a house deposit or equity equivalent to 25% of the property value is necessary. Brad German, a spokesman for Freddie Mac, stated that: “The point fee is meant to address the added risk of financing condos.”
Borrowing Money more Difficult
Mortgage lenders are applying stricter criteria regardless of how individual states have been affected by negative equity and mortgage foreclosure. Amy Tierce, of Fairway Independent Mortgages, stated that: “The restrictions and fees, which are in force nationwide, unfairly penalize homeowners in the Boston area, where condo foreclosures have not been as prevalent as in other parts of the country.”
Mortgage lenders are increasingly reluctant to lend to condo buyers because of the problems faced in the event of mortgage foreclosure. Condo mortgages are still available, but borrowing money is now more difficult. Borrowers will now need a 20% house deposit.