The Federal National Mortgage Association, also known as Fannie Mae, is a government agency that purchases loans from banks and repackages them for resale to investors. There are certain minimum requirements in place for prospective borrowers to prevent Fannie Mae from purchasing loans with a high risk of default. If you are looking to buy a condominium and would like to know whether it is eligible for financing backed by Fannie Mae, you can check its website for a list of approved properties.
If the condominium complex is a new construction project, the owner must presell 70 percent of the units to qualify for Fannie Mae financing. For existing projects, at least half of the complex must be owner-occupied. A single owner cannot own more than 10 percent of the individual units available for sale. No more than 20 percent of the area within the complex may be reserved for commercial use. This may be a problem for multi-use facilities that include condominiums on top of a level of retail shops or restaurants.
The homeowners' association must keep cash reserves of at least 10 percent of the monthly budgeted income. These cash reserves may only be used for repairs to the condominium complex or to cover insurance deductibles on property damage claims made on behalf of the complex. If the complex is located in an area with historically stable property values, the owner may request an exception to the cash reserve requirement. Fannie Mae will perform a detailed investigation of the complex's financial health and the property values in the area.
The owner of the complex must have adequate hazard insurance to cover the buildings and all equipment, fixtures and personal property contained inside each unit. If the complex has more than 20 units, it also must have fidelity insurance covering the homeowners' association's cash reserves. Each condominium owner is required to purchase homeowners and liability insurance for his individual unit.
To reduce the risk of tenant default, Fannie Mae places certain restrictions on the terms of sale of each condominium unit. The seller may not accept less than a 10 percent down payment and, no payment abatements are allowed. This includes homeowners association dues paid up front by the seller as a means of enticing new buyers. The complex is not eligible for Fannie Mae financing if more than 15 percent of its tenants are more than 30 days past due on their homeowners' association dues.
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