REAL Exclusive Magazine

“Show Me The Money” Or How Do I Get Financing For This Condominium?

By Steven R. Greenberg

We are all aware that the underwriting guidelines for purchase-money financing have become very restrictive due to the economic downturn and the subprime lending debacle. As difficult as it is to obtain financing in the current economic environment, purchase-money financing for condominiums has become particularly troublesome. This article will address some of the issues facing buyers of condominium units needing purchase-money financing.

Most institutional lenders are requiring a minimum of 25 percent down by their condominium buyers. This means that a condominium buyer must be prepared to pay 25 percent of the purchase price at the time of closing. Typically, a buyer of a single family home with similar credit would expect to pay 20 percent of the purchase price at the time of closing.

Furthermore, financing for investment-use condominiums is extremely difficult to obtain. Most institutional lenders will require an even larger down payment if they will even loan to a buyer for an investment-use condominium.

Another obstacle facing condominium buyers is financing for a “rental complex.” If the condominium project offers rental services, it may be considered a rental complex by lenders thereby making it harder for the condominium buyer to obtain financing. Although the availability of on-site rental services may add value to the units in a “resort complex,” it can also be a detriment to obtaining financing.

 Conventional financing is also difficult to obtain for condominium conversions and condominium complexes which are still under Developer control. Another impediment to purchase-money financing for condominiums is delinquencies of maintenance fees by more than 15 percent of the unit owners in a condominium complex. Additionally, condominium complexes having less than 75 percent of the units owner occupied is difficult to finance for buyers.

The above factors are intended to be guideline. A loan officer can ask for an exception or variance depending on the particulars of the loan application and the condominium complex. In some cases, a down payment of more than 25 percent will reduce the amount of diligence and inquiry by the lender regarding the condominium complex.

REALTORS® taking a listing of a condominium unit may wish to speak with a lender at the onset in order to learn what financing may be available for this particular condominium complex. Otherwise, their seller may tie up the unit with a contract having a financing contingency of which there is no reasonable expectation that the buyer will be able to procure a mortgage. A REALTOR® representing a buyer of a condominium unit should also consider checking with a lender before submitting an offer with a financing contingency in order to determine the amount of financing that may be available for the purchase of the unit. REALTORS® have traditionally focused on the creditworthiness of the buyer when considering financing. It is now necessary to also consider financing availability from lenders for the purchase of a condominium unit.

Steven R. Greenberg has practiced Real Estate law in Sarasota since 1986 and is a shareholder in the law firm of Icard, Merrill, Cullis, Timm, Furen & Ginsburg, P.A. He is board certified by the Florida Bar in real property law and frequently lectures on matters involving real estate transactions. Steven may be reached at (941) 365-6216 or by calling Linda Witt, Director of Marketing, directly at (941) 586-4412 or by email at mzwitt@aol.com.