Save Money and Get Approved with a Florida Limited Condo Review
Are you looking to dive into homeownership without worrying about the upkeep that comes with townhouses and single-family homes?
Financing a condo in Florida with a mortgage can be pretty challenging. The condo needs to be approved for lending, and you also need to meet various eligibility requirements.
Mortgage lenders are usually interested in the stability of the condo project from a financial standpoint. They are also concerned with the homeowners' association managing it.
You can do two types of project reviews on a condo in the sunshine state. These reviews include a full review (which gives the building's entire financial picture) and a limited review (which doesn't dive deep into the financial matters.
The condo project must be 100 percent complete and 90 percent sold to be eligible for a limited review. It also needs to be closed to the unit owners and managed by a homeowners' association.
You should know everything about a limited condo review to save money on your next condo purchase.
Differences Between Limited Review and Full Review Condo Approvals
The limited and full review are the two types of condo approvals offered by Fannie Mae and Freddie Mac. As a streamlined loan program, a limited condo review targets lower-risk loans.
Your condominium is likely to be approved when underwritten under this program compared to the full review program. Here are some of the aspects that make limited condo reviews different from full condo reviews:
The lender doesn't have to verify the number of condo units, usually delinquent on the condo fees.
Lenders are not authorized to analyze the association budget of the condo, meaning that there's no scrutiny on the number of funds directed to reserves.
No need to verify fidelity bond coverage when the condominium insurance is reviewed.
- The lender doesn't care about the number of owner-occupants and investors.
The full review process is suitable for new and established condominium projects, certain MH (manufactured home) projects, and co-op projects.
Mortgage lenders that perform this kind of review ensure that the condo project adheres to various eligibility requirements.
You may have a full review performed when the unit used to secure the loan is an attached unit in any project type. They include an established condo project and a new or newly converted condo project.
Are Fannie Mae and Freddie Mac's Condo Review Processes the Same?
Putting down 20 percent of a loan can improve your chances of qualifying for a limited condo review through the Fannie Mae loan program. The mortgage lender will want to verify the following details:
The project isn't associated with any litigation.
The homeowners' association has been handed to the unit owners.
The project doesn't require additional phasing.
The building is 100 percent complete.
A manufactured home isn't part of the project.
- The condo is not an ineligible project (like a timeshare, houseboat, or live-work).
Freddie Mac and Fannie Mae's condo review processes are the same. Both programs refer the processes to a streamlined review.
The good thing with Freddie Mac is that only a 10 percent down payment (instead of a 20 percent down payment) is required.
Types of Loans That Are Eligible in the Limited Condo Review
You can't get a condo bought as an investment property through a limited review since it is ineligible. The limited condo review is open to conventional Fannie Mae and Freddie Mac loans. Primary residences and second homes are also eligible.
The condominium must be available for rate and term, cash-out refinances, and purchase. Your credit score won't affect your eligibility for the limited review. However, you have to meet the following LTV (loan-to-value) requirements:
Seventy-five percent maximum financing on a 1st mortgage and 90 percent combined financing on your first and second mortgage for your primary residence.
Seventy percent maximum financing on a first mortgage and 75 percent combined financing on the first and second mortgage for a second home.
- Seventy percent maximum on the first mortgage and 75 percent combined financing on the first and second mortgage for an investment property.
The mortgage lender isn't obligated to confirm that your project meets the eligibility requirements of a different project review type in various cases.
For this rule to apply, your project and loan transaction must qualify for and meet all requirements for the limited review project.
Basic Condominium Requirements for the Limited Review
Limited condo reviews have more straightforward project underwriting standards and require less documentation than full reviews.
Most mortgage lenders have additional requirements for the property beyond Fannie Mae and Freddie Mac's requirements. Your condo loan can get approved by a particular company and be denied by major lenders.
The lender won't process your loan when you fail to verify the eligibility of the condo. The basic requirements needed for your project to get a limited review approval include the following:
Flood insurance with respect to the flood zone.
Fidelity insurance if the project comprises more than 20 units.
A minimum HOA (homeowners' association) General Liability Insurance of 1 MM.
- Lawsuits that involve structural litigation are not allowed (unless the lawsuit is directed to the recovery of repair costs).
The condo also needs a limited review questionnaire before approval. Lenders ensure that the questionnaire confirms details such as:
Commercial space not exceeding 25 percent.
No single entity is in ownership of more than 10 percent of the units in the building.
Small 1-4-unit condominium projects qualify provided no single entity owns more than one unit.
5 to 20-unit condominium projects qualify provided no single entity owns more than two units.
- 90 percent of units should be sold, and HOA control is turned over to the unit owners.
Waiver of Project Review
Project types and loan transactions that meet specific criteria don't need to go through a project review.
The project types and transactions include a detached condo unit, a unit in a two to four-unit condo project, a unit in a PUD project, and Fannie Mae to Fannie Mae limited cash-out refinance.
A detached condo unit is a condo unit whose structure is entirely detached from other units in the condo project. It doesn't share adjoining floors, ceilings, walls, and architectural elements like garages or breezeways with adjacent units.
The detached unit may be situated in a development constituting a mix of detached and attached units or be in a project comprising detached units.
The waiver of project review applies to new and established detached condo units. The unit owner has to own the detached condo unit and the lot it is built on.
You may also get the project review waived when buying a new or established condo unit in a project consisting of up to four units. The project may have a two to four-unit condo to qualify for the waiver.
Your condo project may qualify for the project review waiver if a Fannie Mae-backed loan covers it and refinanced with a limited cash-out refinance.
However, the limited cash-out refinance should have a maximum LTV ratio of 80 percent. Note that HCLTV and CLTV ratios may be higher.
The exception to a Project Review Waiver
Condos categorized as manufactured homes don't qualify for the project review waiver.
However, you can have the property reviewed based on the relevant project review requirements for manufactured homes.
The same applies to condo projects that contain a manufactured home.
Requirements that Apply During the Project Review Waiver
Being approved for a condo loan without taking the unit through a review can help you save money. But before you get there, the following requirements will apply:
The condo must meet the relevant property eligibility requirements.
Common expense assessments must be prioritized.
The condo project shouldn't be a segmented ownership project, timeshare, houseboat project, motel, or hotel.
Insurance requirements must be adhered to.
- The appraisal should comply with the relevant appraisal requirement if it has been done on the condo.
Can Piggyback Mortgages Save Condo Deals?
Piggyback mortgages can offer you a good deal when looking to buy a condo since they allow you to buy the unit through two mortgages simultaneously.
The first mortgage will cover 75 percent of the property's price, while the second loan covers 15 percent. Consequently, your down payment will cover the remaining 10 percent.
One reason piggyback mortgages are popular is that they help you avoid paying private mortgage insurance. They also trigger a limited review and save you money in the long run.
How Piggyback Mortgages Work
A 75-15-10 or piggyback mortgage refers to two loans opened simultaneously to buy a home. The first loan piggybacks on the first one to cover a large percentage of your home's purchase price.
When getting this type of home loan, your first loan will cover 75 percent of the condo's purchase price. You will then open a second loan for 15 percent of the purchase price.
The second loan, in this case, will operate as a home equity loan, home equity line of credit, or a second mortgage.
Often known as a home equity line of credit, the second mortgage will need you to pay interest each month. The balance might be the same in five or even ten years if you fail to make additional payments to the loan's principal.
The mortgage lender will require you to put 10 percent down when processing the piggyback loan. Depending on your financial situation, they may also offer you different types of piggyback mortgages.
The second number always represents the second loan, while the third number represents the down payment.
Precautions to Take with Piggyback Loans
It's no secret that piggyback loans are not for everyone. Depending on the lender and your financial situation, loan factors such as monthly payments may differ. You have to read the loan's blueprint before committing to this type of financing.
Most lenders require you to have a credit score of 680 to qualify, though the score may vary with the lender. You may consider an FHA loan if you have an irregular income history or a less-favorable credit score.
Your lender may accept to subordinate the second loan by making it more important than the first one. However, reaching this agreement with the lender can be tricky, making it more difficult to finance the loan.
It's pretty hard to refinance a piggyback mortgage later since the lender requires you to pay off or subordinate the second mortgage.
Since piggyback mortgages have no streamlined refinance options, you should expect a longer refinance process compared with FHA refinances.
The interest rates for the second mortgage often vary and are set on the current prime rates. Your monthly payments will therefore rise if the rates increase.
The lender will need you to supply documentation for the two loans if they are opened with two different banks. Each bank may have its own rules regarding the types of documentation needed for loan processing.
Best Practices When Applying for a Limited Review
You will be subjected to an application when applying for a limited review of your condo. The application is a formality to ensure that you give the required documents and fill out a questionnaire. It also helps confirm whether the condo project has any pending litigation action.
Approaching the application with a prepared mind can improve your chances of getting the condo approved for a limited review.
It's essential to know various ways a limited review approval can benefit your project and learn how to respond to any questions directed at you during the loan process.
Do a quick online search on whether the condo you intend to buy offers centralized rentals or hotel services to determine if it is eligible for the review.
Remember to ask for a copy of the law and ordinance, flood (if applicable), and master insurance covers. You may also seek proof of fidelity insurance for a condo project with more than 20 units.
These copies of insurance covers are very easy and inexpensive to obtain. Your mortgage lender will review them and inform you if the copies have defects that will make the condo ineligible for a limited review.
What if There's Pending Litigation on the Property?
The lender will ask for copies of any pending litigation-related activity the homeowners' association is managing the condo. They will review litigation procedures for cases regarding lawsuits and structural defects.
If any litigation cases are found, it may be difficult for the lender to set an operating budget for the condo and approve it for purchase.
Ordering a Condo Questionnaire
You are allowed to order a condo questionnaire after submitting your insurance copies and confirming that the property isn't in the middle of any litigation.
Order the questionnaire at the start of the loan process to give the lender a sense of your financial status and the property's state. It may cost you between $75 and $250 to get this questionnaire, which will have your detailed information that will impact the project's approval.
Getting a questionnaire at the beginning of the loan process will help you single out problematic items. The submitted form won't have errors or omissions since you will have ample time to read it through and fill it out.
If you fail to fill out some parts, the lender won't submit your information to the condo review department. Therefore, you should choose an insurer for your Contents or HO6 policy at the start of the loan process.
The Bottom Line
By now, you know that a limited condo review can make a difference to your loan-to-value ratio when buying a condo.
With a limited condo review approval, there won't be a need to go through the extensive document review process to approve the condo when you take a mortgage for the purchase.
However, the condo you want to buy should be eligible to qualify for a loan you can use to buy a single condo unit.
The condominium must be a unit attached to an established condo project for it to undergo the limited review process. Freddie Mac and Fannie Mae allow a limited review when taking a conventional loan for a condo.
The review will mean that you won't have to verify many financial aspects of the property, unlike a full review, and get to save more money in the long run.
With over 50 years of mortgage industry experience, we are here to help you achieve the American dream of owning a home. We strive to provide the best education before, during, and after you buy a home. Our advice is based on experience with Phil Ganz and Team closing over One billion dollars and helping countless families.
About Author - Phil Ganz
Phil Ganz has over 20+ years of experience in the residential financing space. With over a billion dollars of funded loans, Phil helps homebuyers configure the perfect mortgage plan. Whether it's your first home, a complex multiple-property purchase, or anything in between, Phil has the experience to help you achieve your goals.