Detached Condo Requirements Fannie Mae Loans

FNMA has removed the requirement for a limited condo review for a detached condo project. Detached condos must meet general property/appraisal standards, insurance and priority lien requirements BUT the limited review requirement has been removed.

A condominium is a method of ownership, typically the concept is one in which you own the interior, but not the structure, roof, land and so on – each one is a little different and the actual details are spelled out in the condo “docs”.

These documents are on file with the state and are available usually from the Realtor who has the listing as well as the county registry of deeds.

First Time Home Buyers are often attracted to Condos, because in our State most of them are located in Urban downtown areas.  In some parts of the State, like Carolina Beach, Detached Condos are the norm.

Detached Condo means that the building that is being offered is not attached to any other. So it may look like a single family home and appear to be on it’s own lot.

Again, read the “docs” and you will see what is actually being offered for sale. Probably you will actually own the interior (from the studs in…) including all the windows and doors.

You will have some percentage of ownership in the so-called common land, probably an undifferentiated share. You may have control of a small footprint around the unit for gardens.

Probably you will have a monthly condo fee that will cover some services, insurance, taxes and future replacement of roof or siding, but again, that is a question worth asking and reading about in the docs.  Your Homeowner’s Insurance Policy will be slightly different based upon this arrangement as well.

This fee would not be charged if you were buying a single family house rather than a detached condo, so it is worth deciding if you want to pay a fee or actually mow lawns, shovel snow, etc.

Sometimes owner’s age or health, requirements of a job or lack of free time make a condo well worth the monthly fee.

Again, a detached condo just means the structure is not connected to another unit and it normally looks like a single family home. It’s not a reference to land ownership and (by the way) it’s even possible to own a single family home and not own the land but lease the land.

This is why reading all condominium documents prior to signing a contract is important.  We know of a condominium property in Raleigh that requires the owner on the top floor to be liable for any leaks from the roof! (??)

Sometimes regular condos are built on leased land and your condo fee pays for the leased land. Often detached condos can have shared septic systems with other units.

They could have a common well or water company.

Of course we have even seen single family homes that share wells and septic systems too.

Detached Condo Requirements Fannie Mae Loans

FNMA has expanded the condo project litigation policy to allow for more flexibility. Specifically, eligible minor litigation criteria has been expanded to now include the following:

• the HOA (Home Owners Association) or co-op corporation is the plaintiff in the litigation and upon investigation and analysis the lender has reasonably determined the matter is minor and will result in an insignificant impact to the financial stability of the project;
• the reasonably anticipated or known damages and legal expenses are not expected to exceed 10% of the project’s funded reserves;
• the HOA or co-op corporation is seeking recovery of funds for issues that have already been re-mediated, repaired, or replaced and there is no anticipated material adverse impact if funds are not recovered; and
• litigation concerning localized damage to a unit in the project that does not impact the overall safety, structural soundness, habitability, or functional use of the project.

In general all Condo Projects (including Detached Condos) also need to provide a budget with at least a minimum reserve of 10% for capital expenditures and deferred maintenance.

It must also show that no more than 15% of the total units in a project are more than 60 days past due on their dues.

For investment property transactions in established projects at least 50% of the total units in the project must be conveyed to principal residence or second home purchasers. This requirement does not apply if the subject mortgage is for a principal residence or second home.

FNMA also has very specific language about the Insurance Policy required by the Detached Condo project:

“The HOA or co-op corporation must maintain a commercial general liability insurance policy for the entire project. The policy must include coverage for:

• commercial spaces that are owned by the HOA or co-op corporation, even if they are leased to others, and
• bodily injury and property damage that results from the operation, maintenance, or use of the project’s common areas and elements, and any other areas that are under its supervision.

If the policy does not include severability of interest or separation of insureds in its terms, Fannie Mae requires a specific endorsement to preclude the insurer’s denial of a unit owner’s claim because of negligent acts of the HOA or co-op corporation or of other unit owners.”

FHA also has a Condo Project Eligibility checklist.

The condominium project must be on HUD’s approved condominium list.  Many projects that were are approved prior to 2011, did not renew their documents, and are no longer on the NC FHA Approved Condo list.

The FHA Condo Guidelines do not specifically address differences between attached Condos and detached Condo Projects. Here are some of the requirements for NC FHA Condo Project Approval.

Under the FHA Eligibility program, 80% of the HUD-insured mortgages in a condominium project must be the principal residence of the owners (owner-occupants).

If the Condominium is not approved because of not meeting one or more of these requirements, then the Lender may go through a Non-Warrantable Condo mortgage program.  These loans are more risky, and generally are only offered as Adjustable Rate Mortgages.

Have more questions about a Detached Condo?  Call Steve and Eleanor Thorne at 919 649 5058.  Connect with us on Facebook we’d love to help you make your dreams of buying a home in NC come true!