Condo Catch-22

[USRufnex]

So...... I have someone I know...... who is..... trying to buy a condo in the Cherry St area...

But due to the economy, conventional loans aren't as easy to qualify for...

Since the condo bldg is about 33% owner occupied, the unit in question doesn't qualify for an FHA loan.

Unintended consequences:  Investors welcome... occupants, not so much. 

Thoughts?

[Red Arrow]

So...... I have someone I know...... who is..... trying to buy a condo in the Cherry St area...

But due to the economy, conventional loans aren't as easy to qualify for...

Since the condo bldg is about 33% owner occupied, the unit in question doesn't qualify for an FHA loan.

Unintended consequences:  Investors welcome... occupants, not so much. 

Thoughts?

Hang out with wealthier people.   

[bokworker]

Actually Ruf investors won't help either. For a condo purchase to qualify for a conforming loan, that is one that Fannie Mae or Freddie Mac will buy, the development has to be 75% sold and closed to owner occupants. Investor owned units don't help. Several new condo developments in Tulsa are now bank owned so it may be that the bank that has the construction loan on the project would be the most likely to offer long term financing in a non-conforming basis. Most mortgage lenders will not make a loan that they will have to keep on their books, i.e. cannot sell to FNM or FRE, so the whole condo market is basically screwed as you have to have a whole lot of cash deals to get the requisite number of condos sold before the rest can be financed.

This is a direct result of all of the condo losses that FNM and FRE have taken in the "hot" markets and is not a result of losses in the Tulsa market. Oh, and one other thing, FNM and FRE will not consider ANY high rise condo financing which really sucks for owners in projects like Liberty Towers that are trying to sell..

[USRufnex]

I didn't mean to imply that getting more investor owned condos would help.

I just think it's ironic that most of the non-luxury condos are in south Tulsa, and they qualify with 75% owner occupancy.

I've read over and over on this forum about how the emphasis in downtown/midtown should be "owners over renters" and how urban density and transit oriented development can help downtown/midtown.

Yet the Shadow Mountain Condos have more urban density than places like the Metro Lofts.... and the downtown Central Park high rise condos are SOL-- here you have urban density in housing yet there is not much reasonable "walkable urbanity" in that area...

I understand that Tulsa's Cherry Street will never be able to compete with the $299k+ condos and urban density offered on Euclid St in St Louis.... doesn't mean there wouldn't be a small market for it here.... especially retirees, empty nesters, twentysomethings who'd otherwise move to another city if there are no suitable options here....

[Viktoria]

Speaking of Cherry Street condos...One of the co-founders for the MetroLofts just filed for bankruptcy on Sept 25th.
estimated assets: $1 million to $10 million / estimated debts: $1 to $10 million

http://www.tulsaworld.com/business/article.aspx?subjectid=32&articleid=20091004_46_E2_hComme20176

[Steve]

So...... I have someone I know...... who is..... trying to buy a condo in the Cherry St area...
But due to the economy, conventional loans aren't as easy to qualify for...
Thoughts?

If they can't qualify, they have no business purchasing a home, be it a condo or single family property.  It is lax standards that got us into this poor economy in the first place.  Tell them to save their money and eventually buy something they can truly afford.

[hello]

Speaking of Condos, who is responsible for the horrible ones that are on 15th street by Mrs. Dehavens flower shop? Any chance they will be torn down and something more appealing be put up?

[USRufnex]

If they can't qualify, they have no business purchasing a home, be it a condo or single family property.  It is lax standards that got us into this poor economy in the first place.  Tell them to save their money and eventually buy something they can truly afford.

Sorry, but this person's problem is just the opposite.  Can easily afford the condo, but the banks would rather loan more money for a more expensive property for a longer period of time.... the problem isn't the qualification, it's the "owner occupancy requirements".... thus the catch-22. 

Thanks for your judgmental reply.   

[cannon_fodder]

1) Are most condo's built with the understanding that they will be filled with persons buying with FHA loans?   Given the restrictions associated with FHA non-single family home loans . . . that would seem like a very poor business model.

2) I don't get the "rejected because he is too well qualified" argument Rufnex.   I understand that the condo has to be 75% owner-occupied to qualify for FHA loans and I understand that Freddie and Fannie want less or nothing to do with Condo loans now (thanks to baths in Miami, Vegas, LA, etc.).   But certainly there is some bank that keeps a % or loans on the books that would be willing to float a loan to a well qualified borrower?

That seems to be the only real solution.  I understand why SuperMega Mortgage International wouldn't want to jump on it (can't unload it), but knowing there is a relatively stable market you'd think BOK, Regent, Still Water, Spirit or some local/regional bank wouldn't mind holding it on their books.  Especially considering the limited options would enable them to add a point to the loan.

3) Owner financing?

I understand the condo company is not in the mortgage business.  But this can't be a unique problem and there HAS to be a common solution.   The easiest one to come to mind is owner/builder financing. 

Roll the construction loan into a secured mortgage at a lower rate.  Then assign payment on that mortgage to the "buyer" with the down payment being the profit margin to the builder + the cost of the transfer.  The builder gets a profit when units are sold, the lender gets to roll a construction loan (which was already adequately secured) into a long term loan (which can sit on the books like any secured long term loan), and the buyer gets a financed condo.

This would probably cost more than a "mortgage" and would require more than 3% down, but I'm with the nay-sayers who think if you can't save more than 3% of the purchase price you probably shouldn't be buying the home anyway.

[bokworker]

I'll offer my personal experience to the discussion to help make the point that Ruf is highlighting.

Here is the financing I was going for.... 25% down, 800+ FICO, less than 15% housing to income ratio, less than 25% overall debt to income.

unless 75% of the units are sold, closed and owner occupied there was NO FNM or FRE conforming options available. Price point was too high for FHA so that wasn't an option. Local banks were offering non-conforming financing at conforming +2% type rates (i.e. 8% vs 6%) but that was no bargain. Hence, the developers ar being shut out through no fault of their own. Our goal of having high density options to increase our urban feel are in effect being taken away by, as CF pointed out, the losses in other markets.

I could have easily found a single family detached home an not run into this issue but as empty nesters, and a guy that doesn't get into yard work, my wife and I wanted the lifestyle that a condo brings. We got lucky, or maybe not, and got closed on our purchase but the new developments have a serious hill to climb.

Hello, it appears that construction has stopped on the condo's on 15th that you speak of.

[USRufnex]

1) Are most condo's built with the understanding that they will be filled with persons buying with FHA loans?   Given the restrictions associated with FHA non-single family home loans . . . that would seem like a very poor business model.

No. 
But this year is an atypical one.  And despite the fact that SO MANY of Tulsa's condos are priced well within the FHA's range, FHA's new rules make home ownership of a rancid "handyman's special" much easier to get than a well appointed, similarly priced condo.

http://www.bankrate.com/finance/mortgages/new-fha-condo-rules-may-hinder-mortgages.aspx

2) I don't get the "rejected because he is too well qualified" argument Rufnex.   I understand that the condo has to be 75% owner-occupied to qualify for FHA loans and I understand that Freddie and Fannie want less or nothing to do with Condo loans now (thanks to baths in Miami, Vegas, LA, etc.).   But certainly there is some bank that keeps a % or loans on the books that would be willing to float a loan to a well qualified borrower?

That seems to be the only real solution.  I understand why SuperMega Mortgage International wouldn't want to jump on it (can't unload it), but knowing there is a relatively stable market you'd think BOK, Regent, Still Water, Spirit or some local/regional bank wouldn't mind holding it on their books.  Especially considering the limited options would enable them to add a point to the loan.

Maybe last year, but not this year.
During the high flying condo and house-flipping days a few years ago, 4% of all residences were financed FHA.
These days, I'm reading it's more like 21-25%... maybe more....

3) Owner financing?

I understand the condo company is not in the mortgage business.  But this can't be a unique problem and there HAS to be a common solution.   The easiest one to come to mind is owner/builder financing. 

Roll the construction loan into a secured mortgage at a lower rate.  Then assign payment on that mortgage to the "buyer" with the down payment being the profit margin to the builder + the cost of the transfer.  The builder gets a profit when units are sold, the lender gets to roll a construction loan (which was already adequately secured) into a long term loan (which can sit on the books like any secured long term loan), and the buyer gets a financed condo.

This would probably cost more than a "mortgage" and would require more than 3% down, but I'm with the nay-sayers who think if you can't save more than 3% of the purchase price you probably shouldn't be buying the home anyway.

The point is:  why have special rules that screw with condo buyers?  If a 3.5% downpayment is too low for a condo in your opinion, then it should also be too low for a house. 

And part of buying a condo when I lived in Chicago was understanding there was a big enough market that you likely would never have to worry about having to resort to "owner financing"... that it should be the exception... yet in Tulsa it may become  the RULE.... and Tulsa needs MORE buyers and LESS investors in midtown/Cherry St/downtown (you know, the investors who have the money to buy outright, then rent to someone for $$$ per month-- higher than the potential mortgage if the renter was qualified to buy, yet no real incentive for the condo-owner to sell to anyone other than another investor)... 

Combine that with the new ballpark assessment, and you've got a downtown area that will become decidedly unfriendly to condo buyers and sellers if the trend continues.  Dunno the answer....

[cannon_fodder]

Ruf: 

I think 3.5% down is too low for the vast majority of home ownership, including condos.  If you can't save the 3.5% to make a down payment, how are you going to save money for required maintenance or as a reserve in case your income is stretched for some reason?    The answer is you probably aren't going to be able to: which is why low down payment loans typically result in more foreclosures.

I'm not disagreeing with the major premise here:  I think Condo financing should be more available as I very much want to encourage dense development.  But I understand the position FHA, Fannie and Freddie have been put in previously and as a giant bureaucracy one size fits all.  I also understand that it means a bank has to keep the note on their books and it reduces their flexibility . . . thus they are less inclined to jump on board.

I was just trying to clarify what other options are out there, and as far as I can tell . . . it is a the catch-22 described.