Happy Thursday - I hope you are doing well. I spent the last week reviewing the condo guideline changes and I wanted to provide some updates. If you are currently in the market trying to buy or sell a condo or if you are a real estate agent that is listing a condo or helping a buyer with a condo, please review and email us with any questions.
Fannie Mae has a guideline that the maximum allowed deductible on a property insurance peril is 5% of the per unit master insurance coverage amount. However, up until the end of last year, they have not enforced this guideline. They are now enforcing this on all condos and the issue we are having in our market is most condos have a $25k deductible on water damage and this is commonly above the 5% threshold Fannie is allowing. This means Fannie or Freddie will no longer lend on the condo if the HOA does not update their policy. Having the HOA update is no easy task because insurance on condos is already expensive so in some cases, this may be cost prohibitive. My team is working now to talk to an insurance provider to see if we can get an idea of how much this change will increase the policy and will let you know once we hear back.
This is causing such a huge issue across the country that we anticipate Fannie or Freddie will come up with a solution for this but until they do, we have come up with a few options. We could either look at an FHA loan (if the condo is FHA approved) or a non-warrantable condo. We offer non-warrantable condos, but they have higher rates and more restrictions.
ALSO – Please note that some lenders are saying they can still do this conventional by just adding the insurance gap to the homeowners HO3 or HO6 policy. This is not the case. There is a Fannie Mae guideline that does allow you to do this in some cases and the way it is written makes it sound like it applies in Atlanta, but we have confirmed it does not. To utilize the HO6 loss assessment coverage, the per unit peril must be an item that is specific to a geographic area where such coverage is common and customary. Ex. Hurricane deductible in Florida, Ice damage in Connecticut.
In addition to all of this, all condos now must be approved in Condo Project Manager (CPM) for Fannie or Freddie to lend on them. What we are seeing is the insurance issue above is causing a lot of condos to be taken off Fannie’s approved list. When this happens, you not only have to go back to the HOA to get the insurance updated but you then also must take this back to Fannie Mae to get the project re-approved in CPM.
So, if you are looking to buy or sell a condo, please get a copy of the master insurance policy and the property address and we would be happy to see if the deductibles meet the guidelines.
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