July 11, 2014
Why financing is still difficult for luxury condo buyers (Atlanta Business Chronicle)
Editor's note: Karen Rodriguez is a regular contributor to Real Talk.
Prior to the recession, anyone with a pulse could get financing for a condominium purchase.
It didn’t matter where the purchaser wanted to buy because the lender most likely would sell the loan off anyway.
Fast forward five years later and there’s a different extreme. Today, buyers who are extremely qualified with a high credit score, substantial down payment and solid income can’t obtain financing simply because of where they want to buy. What gives?
After the recession, the government implemented guidelines that would prevent lenders from providing financing on any condominium project that did not meet certain guidelines. Most of the guidelines, put in place by the Federal Housing Administration (FHA), made sense.
However, there’s one rule that has done more harm than good. It states condo projects cannot contain more than 25 percent commercial space, such as office space, retail or even a hotel.
What segment does this guideline most affect? Luxury condo projects located above office towers and hotels in buildings that offer five-star hotel amenities and unbelievable top floor views. In other words, the ultra luxury market where condos start at $1 million and above.
It doesn’t even matter if a development is almost sold out or is located in a hot real estate market, if it has more than 25 percent retail, office or commercial space located in the same building, it is deemed “a non-warrantable condo.” This is actually extremely common in today’s luxury condo market with most of Atlanta’s top-selling projects falling into this category.
For buyers seeking financing, most local big-name banks are unable to provide financing for the purchase of a non-warrantable condo because of the FHA’s guidelines. Some banks will try because they want the business and will say they can, only to find out right before closing that they can’t.
Several condo projects in Atlanta have seen tremendous sales activity during the last few years, and many properties have established relationships with local banks that have already provided financing for other purchasers in the building.
More needs to be done.
There is a strong movement to eliminate this guideline but until it is off the books, condo buyers are forced to do more due diligence and seek additional financing options.One thing to remember when shopping around is that most of these programs are only for primary and secondary homes.
Cash is still king when it comes to investment purchases.
Karen Rodriguez is a broker with Dorsey Alston Realtors.