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What’s the Difference Between a Limited and Full Condo Review?

Many hopeful homeowners, especially first-time buyers, explore the idea of purchasing a condo over a stand-alone home due to their affordability, low maintenance, and sense of community.

However, condominiums also have their drawbacks, one of which is that mortgage lenders need to take a closer look at the viability of the project, the strength of the HOA, and the overall condition of the property before approving your loan application. This is where two types of reviews come into play: the Limited Condo Review and the Full Review process

Since the mortgage meltdown that heralded the Great Recession, Fannie Mae (also known as the Federal National Mortgage Association, or FNMA) has established stringent requirements for condo and co-op project eligibility

These guidelines help identify potential problems that could impact the safety and financial stability of the property — and if you’ll be able to qualify for a conventional home loan for the unit you want. 

Let’s take a closer look at the differences between the two procedures and what else you can expect when buying a condo.

A Brief Overview

Whether a condo is eligible for a conventional mortgage depends on whether the condominium complex is warrantable or non-warrantable. A warrantable condo meets the standards laid out by Fannie Mae or Freddie Mac.

How you intend to use the property can affect what kind of financing you’ll be able to use and whether your application will undergo a Limited or Full Review before it can be approved. 

Requirements to receive the streamlined, faster, and less costly Limited Review include:

  • Borrowers must put down at least 10% for a principal residence, and 25% for a second home or investment property (more accurately, max LTV must be 90%, 75%, or 75%, respectively.)
  • The development must be 100% completed with no additional phases
  • The HOA is operated by unit owners instead of an outside party
  • No more than 10% of the units can be owned by one individual or entity (Freddie Mac allows projects where fewer than 25% of the units have not yet been conveyed by the developer to individual unit owners)
  • There can be no pending litigation against the property, HOA, or governing board.
  • No more than 15% of the total number of projects are more than 60 days delinquent in the payment of any levied special assessment

If the condominium community does not meet those standards, a Full Review is necessary, which can alter your loan approval timeline and potentially impact costs. 

More on Limited Condo Reviews

The Limited Condo Review, often referred to as a “Limited Review” or “Limited Review Approval,” is the first level of scrutiny that a condominium project undergoes for conventional mortgage approval. 

It focuses on a few key factors and specific aspects of the property, such as: 

  • Insurance coverage: The project’s comprehensive coverage, including flood and liability insurance, is evaluated to ensure that it adequately protects the interests of both homeowners and lenders.
  • Usage: Warrantable projects can have a maximum of 25% commercial or retail space onsite. 

For Fannie Mae, no single entity can own more than 2 units in projects consisting of 5 to 20 units, and no more than 20% of units in complexes larger than 21 residences. 

Certain non-warrantable properties include timeshares, condotels, residences in assisted living or continuing care institutions, houseboats, motorhomes, and units that require mandatory memberships in a separate, non-HOA organization such as a golf or country club. While you can still get financing for these housing types, you’ll need to explore other loan options (I can help!)

The Limited Condo Review is quicker and less costly than the full process, making it a more attractive option for condominium buyers seeking conventional mortgage approval. However, this means testing may not provide a comprehensive understanding of all the potential risks associated with a condo project.

Full Condo Review: An In-Depth Look

Projects that don’t meet the eligibility criteria for a Limited Review require a much more extensive Full Review. This evaluates all the same factors as the limited process but in greater depth. It also requires a budget review, reserves study, structural analysis, and several legal documents to be provided, such as the covenants, conditions, and restrictions.

A Full Review is necessary if you’re looking to purchase a new or pre-construction condo. Fannie Mae has specific guidelines for projects that are not considered “established,” and that includes units that have been rehabilitated or heavily renovated, i.e., “newly converted.” 

For units in new or newly converted properties, the project must be “substantially complete” and have a certificate of occupancy issued by the applicable government agency. This does not cover the installation of buyer-selection items like appliances, floor coverings, countertops, or lighting fixtures.

To determine the eligibility of a condo project during a full review, your lenders will use Fannie Mae’s Project Eligibility Review Service (PERS). The submission package includes an array of forms that provide detailed information about the condominium community, the developer, and the marketing and management companies. 

It’s also crucial that the condo’s governing board has sufficient insurance and fidelity coverage, which protects the HOA and homeowners from fraud or theft of funds by unscrupulous individuals.  

Why It Matters

Performing the right level of condo review allows lenders to appropriately assess the risks involved with financing units in certain projects. 

Condos with lax governance, structural or safety issues, insufficient reserves, or excessive investor ownership can lead to financial instability, inability to complete necessary repairs, potentially onerous special assessments levied on owners, and increased likelihood of default.

If you’re considering the condo route on your journey to becoming a homeowner, it pays to partner with a mortgage lender who’s knowledgeable about the local market and which projects are worth your investment. 

Get the financing you need to make your dream of owning a home come true — reach out to me today!

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