Update – Early in 2022 Fannie Mae Freddie Mac changed their guidance – See our summary of that here
CONDO ALERT – Yes, condos have looked attractive to many borrowers lately because they are dropping in price in several areas by more than a few dollars. But so many people are asking why Condos are more difficult to purchase now than ever before. And so many are complaining that lenders are being more difficult when purchasing condos. The main reason? Many condo associations are under water when it comes to the monthly dues that they collect. So for condominium associations in Washington State having a reserve study is a state requirement and is strongly recommended for any association that has units for sale.
FHA rules have been readjusted, with new regulations for 2022 that relax some of the requirements that had been established previously. Previously the Department of Housing and Urban Development’s (HUD) Mortgagee Letter 2016-15 allowed the ratio of owner occupied units to drop to as low as 35% as long as the reserve contributions increase to 20% of their total budget. The “10% of budget to Reserves” rule still applies to associations with an owner occupancy ratio over 50%.
Among the FHA HUD various requirements is the need for a current Reserve Study. Here is what they say:
“Reserve Study – a current reserve study must be performed to assure that adequate funds are available for the funding of capital expenditures and maintenance. A current reserve study must be no more than 12 months old – if recent events or market conditions have affected the finished condition of the property that information must be included. When reviewing the reserve study, consideration must be given to items that have been replaced after the time that the reserve study was completed.”