Find Out You’re Buying A Non-Warrantable Condo? This One’s For You!

Find Out You’re Buying A Non-Warrantable Condo? This One’s For You!

Today’s podcast is all about hope! We are talking about non-warrantable condos. What happens when you find out the condo you want is non-warrantable? Not going to happen under Fannie and Freddie!

Mortgage expert Lauren Patin, Underwriting Scenario Desk Analyst for Angel Oak, delivers a message of hope explaining how borrowers with this common challenge can get a loan for a condo that is non-warrantable.

Today’s podcast is all about hope! We are talking about non-warrantable condos. What happens when you find out the condo you want is non-warrantable? Not going to happen under Fannie and Freddie!

Mortgage expert Lauren Patin, Underwriting Scenario Desk Analyst for Angel Oak, delivers a message of hope explaining how borrowers with this common challenge can get a loan for a condo that is non-warrantable.

Michael Chabot
Hey guys, welcome back to another episode of Your Mortgage Matters brought to you by Angel Oak Home Loans. I’m your host Michael Chabot. Today we are talking about that five letter dirty word condo. They are unique and have additional steps when financing them. And today, our guest is Lauren pot 10. Our underwriting scenario desk analyst and she’s going to talk all things condo, and a few other things too. And we’re also going to get into what’s warrantable and non warrantable. So before we get into non warrantable first, Lauren, welcome, and thank you for doing the show. Thanks for having me. Glad to do it. It’s great to have you. We’re gonna have a lot of fun today. So let’s just break it down for our listeners. So you’re all excited you’re buying a condo. But there’s another step that most people don’t know, which is we need to actually underwrite that condo project, correct?

Lauren Patin
Correct? Yes, that condominium has to be approved would review that, you know, certain condominium dockets documents, depending on the review type. You know, for instance, for a new project, we need to we need all the legal docs declarations of aloes. For an established project. We just need the questionnaire, the budget, and the master insurance, property liability, fidelity and flood if it’s in a flood zone.

Michael Chabot
Right. So there’s, it’s basically a checkup for the complex to make sure one that it’s healthy and financial. Right. Right. What do you think some of the additional risk is when financing a condo? Is it because that association, in my opinion, being doing loans for 20 years, I think I’ve heard it said that? You know, the agencies, Fannie Mae, Freddie Mac, they look at it as if condos pose more of a risk, because if the HOA is not financially stable, right, that can cause issues. And we’ll kind of get into it all. But so in doing a condo complex if you’re buying a condo, now there’s two things one is called a full review. One is a limited review, can you tell us the difference between those two?

Lauren Patin
Sure. So a full review is going to be somebody that’s required a higher LTV, so for instance, and they they’re eligible, same long term values as a single family residence. So for instance, and a full review, if you need over 90%, financing a 90, you know, 90.01% to 95, or even qualify for 97, you’d have to get a full review. Second home if it’s you know, 90%, between 75 Oh, point oh, one to 90, you have to get a full review. That means I have to review the questionnaire, budget. This is on an established project questionnaire, Budget Master property, Master liability and fidelity. And we’re looking at everything, I’m going to make sure that they have 10% reserves allocated for, you know, for the owner, assess from their owner assessments, I’m looking to make sure they have enough, you know, fidelity coverage liability coverage. Whereas on a limited review, if your loan to value is 90%, or less than a primary or 75, or less than a secondary investment, then we don’t require to look at that we’re not required to look at the budget, we don’t need fidelity and we don’t need liabilities. That’s the questionnaire and the master property and infinite floods on the master flood policy.

Michael Chabot
So what are the main things? And I know I’m putting you on the spot here a little bit? What would you say the main things that when you’re looking at it are the most important. I know, one is litigation, right litigation complex?

Lauren Patin
Right. I mean, that that’s, you know, well, depending on the area, you know, if it’s one, you know, for example, you know, the East Coast or on the Gulf Coast, or even maybe on the West Coast attempts to it’s in a resort area, you know, I’m looking to make sure that it’s they don’t have mandatory rental, you know, pooling that it’s you know, they’re not mandated to do you know, Airbnb or something like that this facilitate through the facilitated through the HOA, I’m looking to that, you know, they have enough reserves to be solid gold, there’s no litigation. Now, you know, some litigation is okay. Now, if it’s, you know, construction defects with the developers, that is definitely a key deal killer. If it’s a slip and fall, I can give you a prime example. I don’t have to tell my accent but I’m from Baton Rouge, Louisiana. So I’ve done tons of condos in the New Orleans area, Greater New Orleans area, there was one lady that see 10 Different condominium associations on slip and falls. You know, just I don’t know why, but she said 10 Different ones have slipped on a slip and fall. And this this litigation went on for years. And I don’t even know if it’s settled now because I haven’t looked at those Yeah, probably a year or so, but they were fine because it was a slip and fall, you know, things like that, you know, somebody, you know, a guest, you know, injures herself on the property, you know, the as long as we can confirm that the liability insurance is going to cover the cost of the defense and things like that. Typically it’s it’s okay. But anything to do with foundation or you know, construction defects, it’s no good.

Michael Chabot
Makes a lot of sense. Hey, I want to ask you, you brought up something interesting. Condo tell. Explain. explain to people what that is. And is that a financial project?

Lauren Patin
I mean, the term condo tale is probably one of my most nightmarish terms because I feel like that a lot of people don’t really understand what a condo tale is. A true condo tale operates like a motel or a hotel, they have maid service they have, they have made it toward rental pooling that goes on, just because a condominium project has a say rental desk in their, in their lobby does not constitute as a condo tale. That’s the biggest myth of the whole thing. Because it’s all about who owns that rental desk. You know, now if the HOA owns that rental desk, it’s a condo jail, you know, if a third party owns that rental desk, because the owners at their own choice have you know, they bought as a second home and they decide, hey, I’m going to Airbnb or VRBO it, you know, whatever, when I’m not in it, and they contract this rental management company that has a spot at the condo to you know, facilitate their rental, so they don’t have to deal with it, you know, they pay somebody else. That does not constitute as a condo tale. That’s the biggest, that’s probably the biggest myth of the whole thing.

Michael Chabot
Interesting. So you also dropped a couple of really good nuggets there that I want to talk about. So if if you’re looking to buy a condo, and you talked about Airbnb, and probably it’s the same thing with Isaev, VRBO. Some people say verbo. Yeah, it’s that same type of thing. Does that pose an issue for when you’re purchasing a place

Lauren Patin
now, because actually, you can purchase it as a second home. And Fannie Mae in their guidelines actually states that you can even even if for whatever reason, you have to provide tax returns to qualify, you can have rental income from your second home listed on your tax returns. You just can’t use it for qualified. So it’s really not an issue.

Michael Chabot
Got it? Got it. So you can? That’s a good question I had that come up recently, for a client, she asked me, you know, because in the marketplace, the monthly rental, so for a long term rental, the rental income was I’ll just use a round number. Let’s say it was $6,000 a month it was in a high end area. But the Airbnb rental, generated $12,000. But we’re not at a place yet where we can use that, like when you’re buying, I’ll explain to our listeners, you can use Estimated Rental income but we’re not at a place where we can use that type of rental right

Lauren Patin
now you can only use short term rental if you have a 12 month history of it. And it’s reported on your tax returns, you know, for that specific property. You can’t buy a property and you know expect to use the Airbnb, you know, you’re only live to use the monthly market rate analysis, but you can’t use every you know, projected Airbnb unless you have a 12 month documented tax return history of it.

Michael Chabot
I love that. That’s great stuff. I know we kind of touched on it already. But let’s let’s talk about what truly makes a condo non warrantable. So where let’s just paint the picture for listeners, real estate agents, anybody else who’s listening that says, Oh, great, we’re in escrow, we’re buying this condo, and then all of a sudden bump bump. It doesn’t fit the agency guidelines.

Lauren Patin
Right? So one thing is, if you’re doing and this is an A lot of people don’t really realize this, maybe a lot do but I felt like a lot don’t. So if you’re doing a full review, and your subject property is an investment property, then would Fannie and Freddie Freddie both say is that 50% have to be conveyed or under contract to primary or second home occupants. However, if you do it as a limited review, that is moot, that doesn’t matter. They don’t care about the investor concentration. So if you need a higher LTV, then it’s going to be it’ll deem it non warrantable. But if you can get it, you know, get by with a limited then it would be warrantable.

Michael Chabot
Yeah, that’s a great little tidbit. And for those listening, if you’re buying it as an investment, how much do you have to put down in order to qualify for limited review, get down to 25% 25, which I advise my clients on investment properties to put down 25% anyway because the rate difference is so much better. And so I think that’s a little tidbit that a lot of people don’t know and again, that’s that’s huge.

Lauren Patin
Generally when you’re banning investment property, I mean, you know, I’ve robbed someone can be you know, so substantial amount of money. But I mean, 10% is really not that, you know, breaker make or break it, you know what I mean? It’s yeah. You know, more advantageous to do that?

Michael Chabot
Yeah. And the reality is most that are buying investment, they’re prepared to put down 20%. So to go from 20 to 25, could be the difference. So that’s a huge little nugget there. Excuse me talk about the the items that cause a condo to be non workable, we talked about occupancy ratios, what are some of the other things on that, that checklist?

Lauren Patin
Commercial Space can cause it to be non warrantable. You know, Fannie and Freddie both allow up to 35% commercial space. And more and more often, lately, I’ve seen, you know, the past couple years, it’s trending that, you know, it’s these live work areas. The key to those is the way that they said they have it set up, if it’s set up as one, you know, complete association that includes the retail, the, you know, the condominiums and whatever else, you know, restaurant, whatever, that’s gonna kill it, you know, that’s gonna be like, but if they are set up correctly, and they’re set up as different entities, then that retail space does not count in the commercial space of the condominium project, because it’s not it’s this two separate entities.

Michael Chabot
Interesting. So here in the town where I live, it I’m seeing it’s a big trend. They’re building new complexes. So down below is retail restaurant, and then it’s all luxurious condos, penthouses above. And so what is the guideline for that? 35% or less,

Lauren Patin
it’s 35% or less. So if it’s set up correctly, which most of them are doing it correct, you know, doing it correctly. In Atlanta, especially area, they’re there, they know, like the back there and how to set up condos. So the retail would be one association, you know, its own its own stands on its own. The Condominiums are a separate association that stands on its own. So the retail space is not included in the condo, you know, square footage calculation. So it you know, it wouldn’t be it would be warrantable. Got it? So it’s not, because when it’s on top of each other, then you’re you know, you’re minimally 50%, you know, right off.

Michael Chabot
Right, that makes a lot of sense. So, I’m not, I want to pause right there and go back to one thing, because you were talking earlier, and you just reminded me of it is the difference between an existing project and a new project. Right. And I want to just talk about the differences, right. And is it? Is it impossible? Because well, sorry, I’m getting ahead of myself. But I want to ask a couple questions. So existing project versus New Project. And then there are certain minimums that have to be met or not. So I’ll let you talk about those items.

Lauren Patin
So for a new project, it has to meet for the for an agency product, Fannie or Freddie product, it has to meet preset requirements, that means that 50% of the of the units in the subject phase now each building is a different phase. It’s the intact from a new one, the entire project doesn’t have to be complete, but that’s subject phase has to be completed at one building has to be completed in 50% have to either be sold or under contract to primary or second home purchasers. Got it. Now, our pork product will allow us to do it at 25% presale.

Michael Chabot
Wow. Wow. So we’ll, we’re going to touch more on that in a bit. But that’s, that’s great. I mean, that’s a big difference, because that’s a big hurdle I think that a lot of lenders run into or buyers run into when trying to purchase a new condo.

Lauren Patin
Correct. Correct. And then you know, and just I just want to notate this too. You can not do any new product, you know. Sure. And then you’re nationwide. I mean, you could not do any new projects on Fannie or Freddie in the state of Florida. We can do them on our port. Sad, though.

Michael Chabot
Interesting. Talk about that a little bit. Is that a is that a Fannie Freddie guideline?

Lauren Patin
Yes. Yes. It’s a geographic restriction for Fannie and Freddie. They don’t allow any new projects in the state of Florida. I mean, my opinion is, you know, take it for what it’s worth, but you know, it goes back to the recession to a bunch of condos going defunct, you know, they it was just, you know, it was oversupply.

Michael Chabot
I’m guessing it’s because yeah, Florida probably like California is very condo heavy. Lot of condominiums. Yes. Yeah.

Lauren Patin
Yeah, it’s not you know, you think the state of Florida you think beaches, but if that’s not all, it is, you know, I mean, there’s a lot of people that you know, move to Florida, whether it be you know, that you know, we call them snowbirds, you know, the north of migrating down or, you know, it’s just people want to you know, settle into like the easy life but they don’t want the maintenance of a house or whatever. There’s a bunch of condos in all throughout Florida, you know, that’s just regular residential not, you know, located in a resort area.

Michael Chabot
That’s interesting. Alright, so let’s go back to I wanted to touch on that. Let’s go back to non warrantable condos. And I know so we talked about owner occupancy ratios that need to be met. We talked about litigation. Talk about any of the other things that make a condo non warrantable, meaning that you can’t do a Fannie or Freddie loan in those complexes,

Lauren Patin
if one for Fannie if one person owns more than 20% of the unit, one person or entity owns more than 20% of the units in that project. Fannie, it’s not manageable. For Freddie, one person or entity can own 25%

Michael Chabot
Interesting, how often are you seeing one entity owning that type of percentage in a complex?

Lauren Patin
It’s not? It’s not? It’s not I mean, everyday thing, or what have you? I mean, it I get them a couple times a month. I mean, in the Baton Rouge area, there’s one, you know, rental manner, you know, investor or what have you, you know, because I’m in by LSU. And there’s several projects that he owns 57% of them because he leases it out to college students.

Michael Chabot
That makes a lot of sense. We got to get you to do a GO TIGERS real quick. Right?

Lauren Patin
Go Tigers.

Michael Chabot
Okay, there you go. What was my question for you it was in regard to non warrantable condos. So I know we talked about occupancy ratios we talked about so construction defect, I want to talk about that. That’s where I wanted to go next. Because a lot of people think construction defect. That’s it, you’re dead? You’re done. That’s not the case right.

Lauren Patin
Now, I mean, if there’s an ongoing litigation on it, yeah, you pretty much are. But if there was construction defects, and those those defects have been remedied and have been fixed, and we have proof that they’ve been fixed, if they haven’t been, you know, you’re dead, but if they’ve been fixed, you know, or it could, you know, not, you know, of course, as you know, not all lawsuits are, you know, true, as a matter of fact, of really what happened to you know, so, you know, sometimes they’re, you know, not what they are and you get the documentation or what have you, but sometimes I mean, it may just be like A waterspout. You know what I mean? They’re calling it a construct, it’s a gutter. You know what I mean? That’s not really right. When it comes to foundation issues, and there, and that hasn’t been fixed, we have to have a structural engineers report to make sure that that has, you know, been fixed.

Michael Chabot
Now what if you have construction defect and litigation and you have a letter from the insurance company and or the attorney who’s defending the the the complex of the HOA, or, I guess, maybe not defending but shows that they have enough insurance coverage? to If you have an amount? Let’s say there’s a lawsuit, there’s an amount you have, I’ve run into this. That’s why I’m asking you this question. So you have an amount that the lawsuit is for and you have verification from the attorneys, and maybe the insurance company that says we have more than enough coverage to handle this is that the Zetta hurdle that you can overcome or that’s you’re dead in the water?

Lauren Patin
For Friday, yes, you can ever come up with that thing, any x I was pulling, pulling up the latest announcement or whatever. Fanny just came out on one second from October 13. And it was due to you know, there was a tragic collapse of the chamberlain, south tower in South South Surfside Florida, and had aging infrastructure and significant deferred maintenance issues that weren’t fixed, the condominium project collapsed. This is where this you know, stems from what it says is significant deferred maintenance includes deficiencies and meet one of the crotch of the following criteria full or partial evacuation of the building due to repairs. You know, any repairs that affect the safety, soundness, structural integrity, or habitability of the improvements. So, if, you know, it’s, you know, if you have, you know, stripping of oxygen, you know, it can be occupied and that, you know, you know, it’s been remedied, but there’s still ongoing litigation, then you’ll be fine. But, you know, when it’s, you know, have ability thing, for instance, you know, sometimes there’s, you know, issues after her, you know, the downs out hurricanes come through or hit the East Coast, and they have to rebuild or what have you, and then there’s, you know, lawsuits about the, you know, fixing them or whatever, there’s all have to be remedied and fixed, then we can move forward. You know,

Michael Chabot
you know, that’s interesting, because so I do a lot of business in California, they have wildfires. So there are areas that where if you’re an escrow are in process, you actually have to have the appraiser go out and make sure that nothing happened to the property. So that’s interesting what happens in an area like Louisiana just got hit really hard a few months back, and I know you were affected yourself by the hurricane that came through there. Is it the same type of thing to appraisers have to go back out? reinspect?

Lauren Patin
Right. Yeah. So for conventional for conventional loans, actually a, you know, a, on some of these unaffiliated with the transaction, like, for instance, me, I’m in underwriting, so I can go out and do re inspections on conventional loans. Every year, I do them, because it’s just how we live, you know, I mean, it’s normal. For government loans, though, they do require the appraiser to go back out and do the inspections.

Michael Chabot
Interesting, something that those who don’t live in those areas never think about.

Lauren Patin
Yeah, it’s I mean, it’s a secondary, I mean, you know, just quarter you know, the price you pay to live there with either here, you know, wildfires, tornadoes were to, you know, pick your poison earthquakes,

Michael Chabot
right. Yeah, those right. So yeah, it’s interesting, you bring up something. So, in the coming weeks, I have a guest coming on talking about climate change, and how it’s going to affect the mortgage industry in the housing industry. So, and I know you guys just lived through it. So, absolutely. So let’s talk about are there any other things that make a condo non warrantable? Anything else that we haven’t talked about?

Lauren Patin
Um, yeah, look through my list real quick, I think that’s really about it. The main thing is, you know, the commercial space once, one person owning too many, you know, that’s, that’s probably the biggest thing, you know, that I say, I don’t see much see it for other items, not that it doesn’t come across here and there, whatever. But the most common is one person or MC owning more than the allotted 20 or 25%. And the reason that, you know, that’s in place is because, you know, if there’s one person, for instance, like in Baton Rouge, that’s got one, you know, company owns, you know, 50 some percent, if he goes belly up, that projects belly up, basically, because, you know, they’re dependent on him for half of their income, you know, so,

Michael Chabot
yeah, and that’s why they look at it, which is a great explanation. Why talk about? Can it be an issue if there’s too many delinquencies and HOA dues?

Lauren Patin
Right? Yes. So no more than 15 or 15% can be greater than 60 days past due? And it’s, I can’t tell you that I really see that often. I mean, maybe one a year, if that.

Michael Chabot
Okay, and why is it that they have that requirement?

Lauren Patin
Just for this, you know, the financial stability of the

Michael Chabot
project? Got it? And is that the same I, um, it used to be 30 days years ago, I remember that, and I’m going into the memory banks. Now, I feel like once a few years ago, I had a condo complex, that was a full review, and they didn’t meet the reserves the required reserves.

Lauren Patin
Right. So that’s, you know, that’s a great topic. So the reserves a calculated bet. So you’ll have, you know, you’ll get your budget or what have you. And it may have a couple different line items, you know, it’ll have owner assessments, it may have, you know, some places rent the top of the buildings for antennas, you know, they lease it out to whoever, the only amount that you calculate the required reserves is off the owner assessments, and it’s 10%. So if, you know, for all the units, they you know, receive $100,000 annually, then you need $10,000, allocated to reserves the reserves for capital improvement and deferred maintenance. Now, if it doesn’t technically say the word reserve, but it says deferred maintenance, or capital improvements, which are long term things like replacement of things, like replacing a roof, not repairing a roof, replacing an elevator, not repairing an elevator, you know, that’s, that’s what it’s for. That’s the same thing. It’s not, you know, it doesn’t have to specifically say our, you know, reserve reserves are, as you know, spelled out, but it can be for it’s for those items, capital improvements and deferred maintenance

Michael Chabot
on it. That’s a great answer. And thank you, because I know, that’s one that a lot of people get hung up on. A lot of realtors don’t understand it, and not to their to their fault, but it’s just something that they don’t know. And when you have to call them and say, Hey, this condo complex, we can’t lend on it, because it doesn’t meet

Lauren Patin
the reserve requirements, you know, and so, one positive on that part is, so if it doesn’t make sense, and I’ve had, I mean, I can’t tell you how many webinars calls or Fannie Freddie or whatever, through the years, because I’ve been primarily responsible for condominiums for the last 10 years, at least. So even if so if you want to do a limited review, even if you have the budget, and you can throw the budget out and just do it as a limited review, you don’t have to deny the project because, you know, doesn’t meet the reserves when it can qualify for, you know, lower the LTV and it can qualify for a limited review. That’s great to know. And then on our port product, we, you know, at you know, certain LTV, there’s not even a reserve requirement. So,

Michael Chabot
alright, so let’s that’s a great transition. So, here at Angel Oak Home Loans. We have what they call portfolio products that don’t go to Fannie Mae and Freddie Mac and they do allow Within reason, and we’ll talk about maybe a couple of those things that that would deem it, even non warrantable within those products, but we do allow for non warrantable condos, right. And so talk about some of the differences, and then maybe the things that that no matter what we can’t get past,

Lauren Patin
the hugest difference is presale on a new project, you know, because they allow you to, we allow in, you know, all of their to do new projects at 25% presale, whereas Fannie and Freddie require 50% to primary second homes, that’s the hugest thing, one thing that we’re not going to make an exception on is one person owning, you know, the majority of the project Sure. 25% If somebody owns, you know, 26 27%, we can put in for an exception, I can’t 100% tell you, it’s going to be approved. But, you know, depending on the credit file, it’s it’s like we have, we have the, you know, ability to, you know, make some exceptions on some items. And, you know, that may not meet our typical blocker, my guideline, but we still have way.

Michael Chabot
So each one of our Go ahead, please.

Lauren Patin
And then also, we also own our port product, we allow for 100%, investor concentration, you know, they’re always a full review, we, you know, but 100% investor concentration, so even if you’re buying as a primary, and it’s 100 units, and 99, I’m a rentals, you know, or you’re buying an investment property and 99, you can still buy on there, if he was doing an investment for Fany at a full review it on where to go.

Michael Chabot
Okay, so stop the presses. That’s huge, right? Flashing lights, sirens should be going off. So I do a lot of business in the State of California, there are a few complexes that are 60 70%. Investor, right. And you have other investors who want to buy in there. And in the past, we haven’t been able to do it because we can’t meet the requirements,

Lauren Patin
you have two options, which a lot of people don’t even realize the second option, the first option, you can do it our poor product, our investor cash flowing property. Yeah, that’s huge. You know, 75%, you can also do it as a limited review, because investor concentration has moved on a limited review. And a lot of people don’t realize that.

Michael Chabot
No, you know, it’s, I will tell you that I’ve been in the business for 20 years. And for many, many years, most people that did your position never never told me that never explained that to us. So that’s a huge backing.

Lauren Patin
I you know, I, I didn’t realize it for a couple of being honest, I was a proven condors for you know, the last 10 years, but you know, for the first couple of years, I didn’t even realize it, you know, that because it didn’t make sense to me. I was like farming rock, you know, right. But and after, you know, but I’m always like, doing everything I can to continue to learn and to, you know, figure, you know, where the the honey spot is, or what have you, you know what I mean? Like, what, yes, we do? What, if this lender is doing it, then why can’t we, you know, I mean, where are they getting their information from, you know, research, I’m like, I don’t have to meet investor concentration on the lender to review, there’s the sweet spot, you know,

Michael Chabot
that’s a huge golden nugget, huge golden nugget. So just real quick, and then we’ll keep going. So all of our portfolio, product bank statement, the portfolio, select loan, the platinum Jumbo, and the investor cash flow, we can do non warrantable condos within each one of those products, progress. And then, you know, obviously, like you’ve been talking, the great benefit is the investor cash flow program for investors on top of it, right?

Lauren Patin
Because no one, you know, no employment, no income were qualified on the

Michael Chabot
right record flying off of debt service ratios and the rental income. So. So we talked about construction defect is one of the things that would make it not no go even for our non portfolio products. Correct. Right, right. Is there anything else that would make it a no go?

Lauren Patin
Um, you know, the one the one purse the single entity out, you know, individual owning, you know, too many of the units, that’s, you know, yeah, that’s a big, we’ve tried to get exceptions on that. But I mean, like I said, before, you know, I mean, if, you know, they go belly up, its belly up, you know, that’s, that’s the, it’s the financial of it. That’s the main thing. You know, there are guidelines in place, you know, you know, with one person owning, you know, our, you know, Port says one person that I’m 20% Freddie says, 25 We got some leeway there, you know, what I mean? But, you know, in anything that, you know, even is, you know, say, a, you know, issue or, you know, we can always ask for an exception that I mean, it may be No, but nine times out of 10 It’s gonna be it’s usually Yes, I mean, but, you know, in this industry, I mean, I’ve been doing this 26 years, like, you know, you 20 years, we’ve been told no, a lot of times, you know, so it’s dead in her desk anyway, you know, so and I do want to point out to which I think a lot of areas especially in like historic revitalization areas, they’re converting, they’re doing condo conversions, and they’re doing gut and non gut rehabs. Whereas, like, Freddie allows you to do a non gut rehab in less than three years and Fania. So you have to wait three years to do a non good rehab. Interest. That’s just to kind of caveat, a lot of areas like unknown like North Carolina and like the Wilmington, or Raleigh area, New Orleans, you know, does they convert duplexes into a condo condominium regime, a full guide is going to be gotten down to the studs, you know, replacing H fac everything and non God is going to be, you know, usually a non go, it’s going to be like an apartment complex or something like that, that already has, you know, the facilities and what’s needed to operate individually, you know, where, you know, duplex or even a house, they’ll take a house and, you know, redo it or whatever, but they’re not taking it down to the studs. But they’ll add a kitchen into it, you know, whatever to make it to livable units. Because you know, that they’re not making any more land said or when the basic and

Michael Chabot
Yeah, and I’ve I’ve run into some issues in California, because they’re doing a lot of condo apartment complexes where they convert them into condos. Yes. So we’ve, I’ve run into some issues in the past,

Lauren Patin
in those cases, depending on I mean, of course, I would have to review, you know, don’t just make a blanket statement. But a lot of times, that’s okay. It just, you know, depends on how it’s set up and how it’s done. But Freddie’s more, you know, has more leeway on that issue than not that Feeny doesn’t allow it, because they do realize it’s a full guide, Fannie allows a write off, but if it’s not a full guide, Fannie three years, but Freddie will allow it, you know, as long as it limits, you know, basic guidelines.

Michael Chabot
And so, you know, what I love about this episode is that, I think a lot of people think the job that we do as lenders is easy. And what you can realize is, there are so many layers of what you need to be an expert at. And if you aren’t, or you’re not quite there yet, you have to have experts like yourself in your corner that can help you dig through and find those gold nuggets, or as you said, the honey spot, right.

Lauren Patin
Yeah. And I mean, I just felt like, you know, the day you stopped learning is the day you stopped being successful. So I mean, I feel like every single day, I mean, it No, no matter how long I’ve done this every single day, no matter how little or how big, I learned something new every day.

Michael Chabot
Yeah, I love that. And I remember the question I wanted to ask you before, I’ve only run into it in California, not other states yet. But I’m wondering if you have where you have these very small condo complexes where it’s maybe 234 units, five units, 10 units, and they don’t have a master Association, the homeowners themselves run it.

Lauren Patin
So the issue there is, so if it’s a two to four unit doesn’t, that’s fine. They don’t Fannie and Freddie don’t even require review on a two to four unit. Okay, two to four unit nor on a detached project. Because there are detached condominium projects, which are basically single family residences that are just under condominium resumes just to the eye. It’s a regular, you know, two single family home. Yep. Yeah. They don’t require review, and neither do two to four units. And actually two to four units don’t even require a master Association. I mean, a master insurance policy that they can care cover their own, as long as it’s complete building coverage for each unit. As far as you know, the five to 10, you know, more than five. I mean, it’s going to depend on how the declarations are set up. That’s you know, it was to whether it’s lendable or not,

Michael Chabot
yeah, that’s good stuff and, and guys that are listening. Now, you know, I started this episode by saying condo is the five letter, new five letter dirty word, because there’s so many things when it comes to financing a condo?

Lauren Patin
Yes. And I mean, to me, I mean, you know, and I just, everything’s like, second nature. I’ve been doing it so long. So I don’t always know, you know, like, think about what topic but but as soon as you bring something up, I’m like, Oh, yeah. And this right. And this, you know,

Michael Chabot
because it’s all filed in the memory banks. Yeah.

Lauren Patin
Yeah. I mean, you know, the good thing about Angel Oak Home Loans, you know, and do when you do send a condominium to be, you know, approved. As soon as we have all the documents that are needed. Generally, you’ll have an answer within four hours at the most.

Michael Chabot
Yeah. And what I love is if that it doesn’t fall within Fannie Freddie guidelines, we can pivot and go to a portfolio product and have options.

Lauren Patin
If there’s a way to go and are waiting to salvage the loan. You know, if there’s something there’s an issue with the counter, whatever it is, I’m going to get you me or my sister, we’re going to give you the the, you know, the way to go, you know, how you can salvage the loan. And I want to also just touch briefly on this. We also do FHA single unit approval condominiums. Wow. And the difference with the The biggest thing that I’ve we’ve done several, and they’re super easy. The only difference is you have to get the HUD non non one form filled out. And the biggest issue I find, though, is so FHA says that 50% of the primary second home, correct, cool. However, the HOA don’t like to break out the second home and investment properties, they just say see off site addresses because it’s a second home, and they won’t break those numbers down.

Michael Chabot
That’s a great question that they don’t kill it. Yeah, that’s a good question. And I want to get back to that one minute. But I just want to explain to listeners, so back in the day, so an FHA condo or a condo that you’re trying to do an FHA loan and has to have FHA approval, right, right. years ago, we could do it was called a spot approval, get that one unit that they were purchasing, approved. Then they took that away and said, No more spot approvals, the whole complex has to be approved. I can tell you in the community where I used to live, I’ve moved about a year ago, there’s only about four FHA approved condo complexes out of about 100. Right. Yeah. And so the single unit that’s, they’re not calling it spot approval anymore. Is there a new name for it?

Lauren Patin
Yeah, it’s called single unit approval. It came out in September of 2019. I

Michael Chabot
was gonna say, I think it was 19. Right.

Lauren Patin
I think it was, it was September was definitely separate. Yeah, I think it was No, I think it was 2019. With a pandemic, my years are running together. Me too. So it is specific to that loan number, and that unit, and whatever FHA is looking for, so you actually, you know, me as a project standards, I actually review the documents and make sure they meet the requirements. But you still have to email the questionnaire to HUD. And HUD is going to check to make sure there’s not more than 10% of FHA concentration in that project. If there’s less than 10%, you’re good, but they don’t allow a project with more than 10% FHA Longtan.

Michael Chabot
Interesting that that’s a huge golden nugget. And so now I want to go back to what we were talking about. So you’re right. So what happens is, if you’re listening, and you’re not in the industry, and maybe you’re looking to buy a condo with an FHA loan, we have to break down the units, right, we have to send a form into the HOA management company, they fill it out. And they typically, like you said, they say, Well, we have let’s say it’s 100 unit complex, we have 50 units on site and 50 units off, I’m just using easy numbers, or let’s just say we have 49 units that are on site addresses and 51 that are off site. Now we have a problem. Right? Right.

Lauren Patin
All right, can be a peel box, which is crazy, but often it can be corrected in that can be a problem, you know, so it’s really a deceptive service, it is sent to a purchaser, because they can’t utilize, you know, an FHA single unit, because the association doesn’t break it down, doesn’t keep track of it, which I get it, you know, I mean, that’s a lot for Association it is. But it’s still a disservice to, you know, potential purchasers.

Michael Chabot
And so really, at that point, your only hope would, and this is saying, if the, the entire complex is not FHA approved, and you’re trying to do a single unit approval, the only way you could move forward is if you could work with that management company to figure out how many of those addresses are second homes.

Lauren Patin
Yeah, and I mean, it’s an you know, you know, kind of, you know, the condominium approval in the condominium, you know, submittal is usually higher in the spring, summer to early fall in, people are, you know, because for a second home purposes or whatnot, agreed, but, um, you know, probably in I would say like, September, August or September, I probably looked at 15, um, for FHA single unit approval, and I would say, nine of them had that issue, and I could not get the HOA to break them down. I mean, like, I would, as far as to look, see if I can make any determination off of county property, you know, tax records, you know, but I really, there wasn’t that, you know, I couldn’t based on that, but I tried, you know, I mean, I’ll, I’ll go the extra effort and see if I could figure it, you know, help figures out now. But there was really no way to determine it.

Michael Chabot
Yeah. That’s really big stuff, though. I mean, if, if, in fact, you can figure those numbers out. I mean, that’s huge, especially in areas where you have low condo FHA condo approval, and this is this is a question for you. And I know it will be an opinion answer. But why do you think so many condo complexes shy away from either getting renewals on their FHA approvals or getting it done the first time do you think they think it’s too much work cost too much?

Lauren Patin
government red tape?

Michael Chabot
Is that what it is? Yeah, just too much work for them.

Lauren Patin
Yeah. Because the you know, they have to submit their their financials and this and that, you know, I mean, it’s, I mean, in the big scheme, it’s not that big of a deal. I mean, it’s, it’s, in my opinion, it’s something they should be keeping up with the anyway. But I mean, that’s just my opinion. So I mean, it’s really not that big of a deal as to you know, it’s just, you know, you still have to prove that your financial sellable, you know, that, you know, you have correct insurances, and you know that, you know, your owner, occupancy is still good. And you have, you know, no more than, you know, the allotted amount of FHA concentration, but they just don’t collect on the paperwork. I mean, sometimes it’s just laziness.

Michael Chabot
Yeah, no, makes sense. And it is a lot of work. I’ve done entire complexes, and it is

Lauren Patin
I don’t want to, I don’t want to do a whole cop. I’m just being honest with you know, I, I mean, I don’t have the capacity. I’m good doing just the individual unit. Sure. I won’t do you know, the Fannie Mae the pair’s approvals? It, first of all, was expensive. And I just feel like, you know, any lender can can ride the coattails of that parent’s approval, you know, and I’m spending the money now. Yeah, I’m not doing

Michael Chabot
it. How about VA condos?

Lauren Patin
For us? It’s, it’s it’s a good bit of legwork to get them done. We don’t we don’t, you know, do VA condominium approval stuff for us. They already have to be VA approved. But it’s a lot. I mean, the documentation is a little bit more extensive than what FHA requires than conventional requires.

Michael Chabot
It’s a lot of work. I’ve done one in the past, and it was a tremendous amount of work. Now, one thing and correct me if I’m wrong, once a condo is VA approved, it’s pretty much approved for life. Correct? Pretty much. Yeah, there’s no expiration, like with an FHA approval. Yeah, that’s, that’s an interesting and really good thing. When you find those. I feel

Lauren Patin
like there’s a lot more VA approved content that people really realize, you know, I mean, you know, but and, you know, and I’ll touch on that, too. So, we didn’t touch on this product. But you know, I don’t know, if you do a lot of them or your audience, you know, is interested in rural development loans, the USDA Rural Development loans, you can also buy condominium, if it meets within the area, you can buy a condominium do that how it has to meet is a full review about, you know, Fannie Mae standards, it can be FHA approved, or it could be VA approved, and it’s eligible.

Michael Chabot
Wow. And have you done USDA? Real level? Yeah. What do they qualify for around the country?

Lauren Patin
And I mean, in that marriage, I mean, there’s inside the city limits, and there’s some areas not but just generally, inside the city limits, it’s not rural development, but outside of city limits about nors. There’s several areas that are not that are already out, you know, rural development eligible on this. Yeah,

Michael Chabot
that’s interesting. I, you know, this is why I love hosting a show like this, because not only do my listeners learn, but I learned little things, too. It’s great. It’s so much fun.

Lauren Patin
Yeah. So yeah, you would just follow the same process you’d like if it was an FHA or VA approved, you are already feigning for hardly any your FHA approved anymore, you know, I mean, there are some that, you know, just questionnaire, the budget, the insurance, you know, and, you know, quicker process, and it can be done. But yeah, I’ve done several several, you know, the Greater New Orleans area, it’s called the North Shore, which is across Lake Pontchartrain. That’s Rural Development eligible. And I’ve done several work in that area.

Michael Chabot
I love it. Alright, so anything else before we wrap up, condo? I just want to touch real quick on Fannie Mae, Freddie Mac in general, because you do a lot of that as well. But anything else on condo before we move on to to Fannie and Freddie?

Lauren Patin
No, I mean, the I, you know, one thing that I made mention, just to be, you know, full disclaimer is on unlimited review in the state of Florida. Whereas, you know, everywhere else in the nation allows 90% for primary 75 for investment in second home. The state of Florida is 75% for a primary and 70 for investment in second home.

Michael Chabot
Wow. Wow. So they’ve really cracked down in the state of Florida.

Lauren Patin
And I mean, I would have thought that but yeah, I mean, this has been for years. They’ve been, you know, at least 18 years. It’s been like that. Probably more but I would thought they would have kind of like, you know, opened it up a little bit, and budged.

Michael Chabot
Yeah, I would think it’s because they have such a large concentration of condo projects in the state of Florida. Yeah. Alright, so, man, time is flying. So before we wrap up, I just want to talk quickly about Fannie Mae and Freddie Mac. And for those of you listening that don’t know, those are the two government, they call them GSEs. Right. government sponsored entities are enterprises that basically by I don’t know, 90% of all the loans that are that are originated, I mean, that’s got to be a huge amount, right. So you’ve talked a lot about what differentiates them but maybe one or two little nuggets off the top of your head that makes them different, and why you would go to each one on a loan.

Lauren Patin
So, you know, some, you know, just to get a general example sometimes we have a bar that’s giving you a bank statement, they’ve given you the one you like, too much, and they’re just, you know, they’re not having a good thing. Fannie Mae requires 60 days, two months of bank statements, Freddie Mac only requires 130 days of bank statements.

Michael Chabot
So that’s a little golden nugget. And then also a quick

Lauren Patin
thing, you know, another thing is, um, you know, I won’t go into too much detail, because it’s a little convoluted. But if you’re using assets to qualify, you know, plumbing related assets, you know, Freddie Mac, allows you to take that number divided by 240. And there’s a qualify more, Fannie Mae is like a lot way more, you know, extended units, tab 70%, and divided by, you know, this factor 10% penalty, it’s, it’s a more convoluted 70 Freddie’s just your easier way to, you know, qualify for that. Yes,

Michael Chabot
yes. And, you know, before we go on with a couple other things, this is what comes to mind is, this is why when you’re a consumer shopping for a loan, or buying a home, not all lenders are created equally, right? A lot of lenders don’t know, all these little intricacies and what separates the two, and how you can get over a hurdle by going to either Fannie or Freddie, it really does make a difference.

Lauren Patin
Right. You know, another, you know, you know, difference people don’t realize is when, for instance, commission income, Freddie Mac requires two years of commission income, Fannie Mae says, if you have at least 12 months, but less than 24, as long as you have positive factors to recently offset the receipt of lesser time, you can use the condition income,

Michael Chabot
right, so and some of those factors, I’m guessing you’re probably reserves downpayment, credit score,

Lauren Patin
and a big misconception as so, you know, any kind of variable income, it doesn’t have to be received for two years, or whatever, from that current job, it can be, you know, from a couple of different jobs, you know, they, you know, they may have just started this new job for three months, and they worked at the previous one for, you know, 20 months or whatever, you know, that’s fine. And you don’t have to be at the current job for that timeframe. That’s, you know, it’s it can be a combination of jobs.

Michael Chabot
And again, as you guys are listening, there’s so many little caveats and things when it comes to doing a loan, it’s not vanilla, as you would think it’s not fill out a form and boom, you’re approved, right? It’s a lot of layers to doing loans.

Lauren Patin
Yes. And another thing, another, you know, quick is, so for, if you have multiple financed properties into separate property, the second home or investment property, Fannie Mae says that, if it’s a second home, they were on the subject, they want too much reserves. And then if the subject property is investment, they want six months reserves, plus, either to for one to four units, if you want one to four for finance, 4% for you know, and up to 6% of the unpaid principal balance for reserves, Freddie Mac, it’s whatever you’re finding, say, Right. Right, as though, you know, I’ve seen in fact, Freddie Mac require nothing. And Fannie Mae’s requiring like, you know, $60,000, you know, I mean, less, you know, less, it’s more to mainly, whatever it’s regarding the less documentation, you know, let’s go that route.

Michael Chabot
Right. And just just for clarification, for those you listening, when she says findings, whenever you do a Fannie Mae or Freddie Mac loan, you have to run it through their automated underwriting engine, and it gives you findings. And so these are great, hidden gems and golden nuggets. So is there anything new coming on the horizon that you know about? That’s not out yet, or anything you might want to share with us?

Lauren Patin
I mean, it’s, it’s out, but you know, it’s, I don’t know, if a lot and then some people are talking about or whatever, you know, it’s for Fannie Mae, Fannie Mae has come out and said that, you know, they want to promote homeownership, you know, and so now, they take the when somebody you have, you know, two bars or what have you, and so you have a bar that has, you know, a 700, MIPS score, and then you have a bar that has a 650 minutes score they’re going for, and it’s doesn’t affect pricing, but it’s gonna affect the risk, the risk analysis, they’re going to average those two scores. Yeah, and then so let’s say a lot of times, you can’t really get conventional, because I see it all the time, they either have only revolving, or they have a whole bunch of student loans that are deferred, and they just don’t have the credit depth to. However, if you do a two year asset verification through a third party vendor, and they can verify their rent that you have on the application for the two years, that’s going to be a positive, you know, risk factor, you know, and they’re going to factor that in so

Michael Chabot
that’s great. So they’re actually using more common sense. Yeah, I love that. I love that and, you know, look, the the extra layer is, you know, as the host of this show, I try to differentiate or separate myself as you know, the loan officer who works for Angel Oak Home Loans, but but really, truly in this case, I have to That’s the benefit of Angel Oak is that if for some reason we go through everything and you don’t fit these Fannie Freddie guidelines, we have a whole slew of portfolio products that we can put you into so that we can still get you into that home. Great. Yeah. So listen, I today was, this was a lot of fun and look, the time flew by. We’re almost we’re just under an hour. You provided so much amazing, amazing information, Lauren, and I just thank you for being a part of the show today.

Lauren Patin
Thanks for having me.

Michael Chabot
It was a lot of fun. So those of you listening again, this is Your Mortgage Matters. I’m your host Michael Chabot. If you liked this, if you found it interesting or helpful on your social media device or your mobile device, like it, share it, please tell your friends about us and we’ll be back to you real soon with another episode. Thanks again, Lauren.