Topic: non warrantable condo loans

Discussion in 'General Appraisal Discussion' started by Mile High Trout, Jul 11, 2011.

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  1. Mile High Trout

    Mile High Trout Elite Member

    2
    Feb 13, 2008
    Professional Status:
    Certified Residential Appraiser
    State:
    Colorado
    Topic: non warrantable condo loans

    Am running into this lately with a popular condo area just up the street.

    Finally went 55% investor held and is no longer FHA ready.

    Many, many, many instances of UC then back on market with a strong relationship to quickly declining prices.

    Strangely, listors still insist on putting FHA financing availability on the listing card. It's like they just don't get it or are still hoping to attract buyers.

    I've found Compass bank offers a non-warrantable loan package which is a decent trade off with no mip but a point added.

    What is your opinion of valuation in popular and well to do condo markets where the balances tip in favor of investors and financing becomes restrictive to non investor buyers?

    MB advised me not to paint myself into a corner. But on the other hand, the income potential is already built in 25%+ just on the income vs market consideration. HOA area as well.

    Some concerns about financing again in the future with a potential non saleable stuck to my side because it's costing about 2/5ths of our available prequal limitation. But then again it's a slam dunk as far as rental capacity goes in the future and will bring us immediate savings which will be a big relief budget wise with the new baby.

    Your thoughts?
     
  2. Noreen

    Noreen Senior Member

    3
    Feb 5, 2011
    Professional Status:
    Certified Residential Appraiser
    State:
    New Hampshire
    If you were my child, knowing your profession, I would ask you. "In your educated Opinion, how much lower do you believe the value will go down before it plateaus and starts the creep up again? " You know the market, is this a unit that you will be happy to be stuck with if in fact it does go down some in the mean time? I know the rental potential is there and that is great, but the out of balance 55% will cost you on the front end, you will likely have to stay with your portfolio lender for a while, are you good with that? . That being said, it is the portion that you get to write off on your taxes, as we speak.
     
  3. Mile High Trout

    Mile High Trout Elite Member

    2
    Feb 13, 2008
    Professional Status:
    Certified Residential Appraiser
    State:
    Colorado
    Yes one tough consideration. Market is not likely to dip much lower than it is, although you never know. Already took hits from high 90's down to high 50's and even mid 30's in only a few years. Rental still bangs out at $800+ though like clockwork. Area is surrounded by other apartments which demand $1.2k per month.

    What I'm most concerned about is debt to income limitations should I seek an upgrade at a later time. I would like to keep it and rent out in the future because it would be a good failsafe to hold on to, but wondered about my real world options. Also this is one of those longer term trend sort of issues of which I could draw a lot of knowledge from appraisers who've been around the block and watch how neighborhoods like that behave over the longer term.

    What does that mean to a regular borrower to be held with the portfolio lender. It's the same from the borrowers perspective isn't it?
     
  4. JSmith43

    JSmith43 Elite Member

    9
    May 5, 2003
    Professional Status:
    Certified General Appraiser
    State:
    California
    In the late '80's there was an implosion of condo values due to the fact that so many apartments were converted to condos and sold to investors via REIT (real estate investor trusts).

    Lots of those investors were in a high tax bracket and until the '87 tax act changed passive loss rules, they could do huge write-offs in early years, which caused many more investors to jump in than if there were not the distorted tax preferences in place.

    As investors bailed, some of those places ended up with vacancy rates so high that the remaining owners were looking at maintenance fees that rivaled the size of their monthly mortgage payments.

    Enough of the scare story. In the spring of 2009, F & F pulled the rug out of condo financing such that potential buyers of OO units in many otherwise healthy condo projects couldn't get conventional financing. They didn't completely cut off financing, but introduced some stern and sometimes arbitrary rules. Insult to injury if FHA financing was also not available.

    The reason this might be a good deal if the association has ample reserves and investor owners and OO are not abandoning the project in droves, is that there aren't any obvious rugs left to pull out from under the condos.

    You know the area. Can you see anything developing locally that might turn the place into a ghost town? I'm not talking about the fine kettle of fish we all find ourselves in (national economy).
     
  5. Noreen

    Noreen Senior Member

    3
    Feb 5, 2011
    Professional Status:
    Certified Residential Appraiser
    State:
    New Hampshire
    As long as you make your payments, it doesn't matter that they are a portfolio lender. At this time for you, it sounds like you need to keep everything manageable because, trust me when I tell you, you will learn the true meaning of "Minority Rule" when the little one gets here, at least in the beginning. I say, you are an educated professional and trust your instincts on this one. Sometimes we can over think it if it's for our selves.
     
  6. Mile High Trout

    Mile High Trout Elite Member

    2
    Feb 13, 2008
    Professional Status:
    Certified Residential Appraiser
    State:
    Colorado
    Great info. It will not be a ghost town. Hooters and Chilies are right across the street. But there has been a standard or expectation that has riden with normal financing availability for a long time there. As the short sale and lo market hit the whole area, substitution of value for price has lead many interested purchasers to afford the actual sf and steer clear of the condos. Prices went up and down and up and down, but always the total was on the downside. What is interesting is this is the first few months this area has been off of the fha condo list and has seen a rash of uc's then back on market. Pricepoints have fallen some degree again to lows rarely seen in the area, and there is no fix and flip potential at all. There is however very good rental potential, and rental looker activity.

    I guess I'm learning the question as I go.

    What sort of credit are borrowers given for second purchases if the first is swapped to a rental the borrower still holds? Could I expect 50% credit vs my costs. 100% credit vs leased income amount, or less than either one of those scenarios? I guess I'm just trying to learn something new about financing in a familiar area which I'm personally still confident in.

    I over think everything. I'm used to it for better or worse.
     
  7. Noreen

    Noreen Senior Member

    3
    Feb 5, 2011
    Professional Status:
    Certified Residential Appraiser
    State:
    New Hampshire
    The last time I was quoted by a loan originator what the parameters were, 75% of rental income per month, less the deducted expenses, remainder would be added to your income going forward. . Does this sound right based on what you were quoted on the terms in the banking world in your area?
     
  8. Mile High Trout

    Mile High Trout Elite Member

    2
    Feb 13, 2008
    Professional Status:
    Certified Residential Appraiser
    State:
    Colorado
    I'm learning about this topic, and that does sound rational.

    If that's how it's working, I may just get two of them!
     
  9. Mile High Trout

    Mile High Trout Elite Member

    2
    Feb 13, 2008
    Professional Status:
    Certified Residential Appraiser
    State:
    Colorado
    Learned a little more today.

    2 year requirement before rental income can be applied as qualifiable income in the debt/income consideration for preapproval. Also must be reported correctly through tax records.

    Various programs exist, but higher rates for income related endeavors. Also nifty is that excessive ccosts negotiations or concessions can be applied to buy down the rate.

    Looks like the trick to pull it off wholly financed is to get at least two of them on the first try, then after the 2 year period is up, you can move on to more of them and the proportional consideration regarding application of rental income back to the debt/income consideration may vary lender to lender.
     
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