| Mortgages lenders look at both borrower and property | | | | don't lend on non-warrantable condos at all, however |
| before approving a home loan. This means both | | | | most banks will just limit the loan to value (LTV). |
| borrower and collateral (the house) must meet certain | | | | Let's say a borrower qualifies for a 95% loan or an 80 |
| criteria. | | | | 15/5 loan. However with a non-warrantable condo they |
| The Main 3 Categories: | | | | may only qualify for 85-90%. Bank's typically reduce |
| First, the borrower's credit scores, income, job history | | | | LTV when there is an inherit risk with either the |
| must fit into the mortgage company's guidelines. Most | | | | borrower or the property itself. |
| people already know about the importance of credit | | | | How does one know if the property is |
| scores though. | | | | non-warrantable? Just talk to the condo's HOA people |
| Secondly, the loan's LTV. Banks are very sensitive to | | | | and ask them. Sometimes they won't tell you directly |
| the amount they loan relative to the value (LTV) of a | | | | and you'll have to ask the mortgage person to order a |
| property. LTV means "Loan to Value." For example, | | | | condo questionnaire which is the document that states |
| 100% loans have a 100% LTV. The borrower is getting | | | | the property's official owner/renter ratio. Some |
| a loan for 100% of the property's value. The higher the | | | | complexes even charge you $100-$250 for this |
| LTV the higher the risk. Naturally, banks prefer low | | | | document. |
| LTVs as these loans usually mean lower risk. Low | | | | 2) Properties with Ag Exemptions: Again, banks |
| LTVs mean lower rates, generally speaking. The lower | | | | typically don't lend on a property with an Ag |
| the LTV the less risk of default. | | | | Exemption. These homes must get financing via farm |
| Finally, the property itself-or the underlining collateral-is | | | | and ranch lenders. |
| the final category bank's review before approving or | | | | 3) Properties in a declining area: If the mortgage |
| declining a mortgage. | | | | company's appraisal shows the property is declining in |
| For example, a borrower can have excellent credit, be | | | | value most banks will, again, reduce the LTV-make the |
| willing to put 50% down (low LTV) and still get declined | | | | borrower bring more money to closing-or not lend at all. |
| because of "substandard collateral." This simply means | | | | Right now there are several "hot spots" in the US |
| the property itself isn't one the bank wants to lend on. | | | | where properties are declining 10-20-30%+. Naturally, |
| Examples of substandard collateral: | | | | these are areas where it's very difficult to get |
| 1) Non-Warrantable Condominiums: This means there | | | | financing because banks don't want to lend on homes |
| are fewer than 50% owner-occupied units within the | | | | that show a declining trend. |
| condo complex. It's occupied mostly by renters. For | | | | Finally, most people think credit scores are the only |
| example, if the condo has 100 units and only 20% are | | | | issue in obtaining a mortgage or refinance; however |
| owner-occupied is a non-warrantable condo; and | | | | banks look at much more. |
| therefore more risky in the bank's eyes. Some banks | | | | |