Know Your Costs When Buying A Salt Lake Condo!! Or One In West Jordan UT!
This weekend we spent some time with a Salt Lake Condo Buyer. Actually we were looking for Condos and Homes for sale in West Jordan.
This was a new prospect for us and when we asked over the phone if she was pre-qualified, she said "oh yes", my lender said I could go up to $240,000.
The list of West Jordan Homes for Sale that we sent her went to $240,000, but the Condos listed in W. Jordan were for considerably less.
In less than an hour we got a call from our new client wanting to know why we didn't send her Condo listings in the same price range as the homes. (she added, all the other agents did).
After realizing that maybe we didn't have a client after all, we tried to explain what no one had bothered to tell her.
Additional fees, dues, and assessments may reduce the amount of house you can qualify for, if that house happens to be a condominium.
We were not successful, and I'm sure she is talking to another Realtor today that will send her Condominiums for sale in West Jordan that she can not qualify for. You and I know what is in store for both this buyer, her agent and her loan officer.
I'm sorry I couldn't explain the reality of buying a condo to her no matter how I tried.
That's why I am passing on this wonderful article written by Robert Rauf, an Active Rain contributor that I have found to have a real good understanding of the problem and a much better way of explaining it than I have.
I wish I had found this Friday.
Heres what Robert has to say about the costs of buying a condo and qualification parameters.
This is a bit of old news that most are NOT aware of is new insurance requirements for condo projects
The end of 2008 FNMA came out with Announcement 2008-34. which touched on many condo issues. The one that will potentially affect ALL of us that sell or finance condominiums is: (straight from the announcement)
Hazard Insurance for Units in Attached Condominium Projects Including 2-4 Unit Projects
The Selling Guide, Part XII, Chapter 5, Insurance Requirements require that lenders verify that hazard insurance for all condominium projects with attached units, including two- to four- unit projects, covers fixtures, equipment, and other personal property inside individual units if they will be financed by the mortgage. The updated policy now requires that the borrower obtain a "walls-in" coverage policy (commonly known as HO-6 policy) unless the lender can document that the master policy provides the same interior unit coverage. The master policy must include replacement of improvements and betterment coverage to cover any improvements that the borrower may have made to the unit.
The HO-6 insurance policy must provide coverage in an amount that is no less than 20 percent of the condominium unit's appraised value. In the event such coverage can not be obtained, the lender should call the Fannie Mae Project Standards Department at the phone number listed at the end of this Announcement. The standard requirement for a 5 percent deductible applies.
In the past lenders did not require any interior coverage insurance at all, only relying on the associations master policy to "re build" the structure in the event of fire etc... I have always advised my clients to purchase additional insurance when buying a condo to at least cover their "stuff"and now Fannie is making this a requirement. This is significant because our buyers will need to purchase additional insurance up front just like when buying a single family home, they will also have an additional insurance payment that may reduce the amount of mortgage that they will qualify for. As a "Real World" example, I have a client closing today who has the coverage that costs $437/ year which is about $36/month. Not a lot, but when you consider the Association fee of $244/month already it adds up. At 6% interest rate the $36/month is $6,000 less you can borrow in your mortgage, the total $280/month is a whopping $46,000 less you can borrow.
There may be some light at the end of the tunnel: Some associations do have interior coverage, I have not found one yet... but I hear that they exist.
The FNMA guide has FAQ's and this is the most relevant one that I found on the subject... it addresses the why?
Why is Fannie Mae now requiring borrowers to purchase additional hazard insurance coverage ("walls-in coverage") beyond that provided by the association's Master Policy? Many states have passed legislation that limit what an association's Master Policy must cover. Because many Master Policies do not provide, or may be prohibited from providing, coverage that includes "improvements and betterments" in the unit, the borrower must obtain this coverage.
It has always been important to advise or clients to check to be sure that they had adequate insurance, now Fannie has forced the issue, which in hind site is a good thing for our buyers, but it is an additional layer of expense to consider when comparing a single family home to a condo.
Knowledge is power, Make sure your clients are aware of the difference so they can make an informed decision. There has always been a miss conception that it is cheaper to buy a condo than a home, but consider the Association fee and the additional insurance into the mix, and your client may be able to afford a more expensive single family home.
Have a great week.
Rob
Robert Rauf
Mortgage Banker
www.RobertRaufHomeLoans.com or my blog: http://activerain.com/blogs/rrauf
There you have it. From a man that knows! (and can explain it).
I hope you enjoyed and were helped by this article that Robert has shared with us.
For other information about Utah Real Estate around Salt Lake, go to our website @ Salt Lake Real Estate. You will find pages of information designed to help make your home buying easier and less stressful.
To see all of the homes and Condos listed for sale in Salt Lake, click on SLC Homes for sale. You'll get photos, maps, prices, and info other agents use when searching for your new home.
Enjoy the search!!