Buying a condo in the Las Vegas Valley has become harder due to recent changes in Fannie Mae’s condo policies, according to local real estate experts.
The government-sponsored mortgage enterprise recently increased the required due diligence for condo loans, and that could make some purchases harder to close in the months ahead, Las Vegas-area mortgage advisor Matt Hennessy said.
Fannie Mae announced the changes in March — which apply to both new builds and resale — which are being phased in over the next year. The changes were made to ensure condo projects across the country don’t get into financial trouble down the road and analysts say the government is worried some condo projects’ homeowners associatons don’t have enough saved for repairs or proper insurance.
Markets such as Florida and Texas have come under increased scrutiny due to a number of issues including increased natural disasters, insurance issues, construction defects and HOAs unable to fund large repairs on projects. Condos are seen by some in the real estate industry as a potential solution to the national housing crisis as they could ease supply and offer a new way for first time homebuyers to get into the market.
“The biggest change is that lenders now have to do a deeper review of condo projects, especially their reserves, insurance and repair risks,” Hennessy said.
If a condo seller’s HOA does not fit the new guidelines, they may be limited to a cash sale only, which limits the buyer pool and will negatively impact their sales price, said Laura Harbison, broker and owner of Realty Executives of Southern Nevada Properties.
If the condominium the buyer chooses does not fit the new guidelines, their purchase may be derailed in the third week of their escrow period after they have paid for a home inspection, appraisal and other items, she said.
“Sellers who want to get ahead of this may want to obtain the Condominium Certification (a form the lender sends to the condo association or management to get facts about the building and finances) in advance to know where they stand,” she said. “Those who confirm that their unit is eligible for financing will have an advantage and attract more potential buyers.”
The biggest impact could be on timelines and deal certainty, said Steve Ord, a real estate agent with KNJ Real Estate.
“More full reviews means more paperwork, more back and forth with HOAs, and longer escrows,” Ord said. “That can create friction, especially with first-time buyers or anyone trying to move quickly.”
Hennessy said there are also changes on how condominium insurance is checked.
“These changes may especially affect first-time buyers, because condos are often a lower barrier of entry to homeownership,” he said. “If a condominium project does not meet the new conventional rules, a buyer may need to entertain alternative financing options like FHA, VA or non warrantable loan programs.”
Buyers may now see more upfront costs in requesting HOA budgets, reserve studies, insurance declarations and legal documents before a lender can say yes to the approval of their mortgage loan, added Hennessy.
“In plain terms, condo financing is not disappearing, but the approval process is likely to be more detailed and less flexible,” Hennessy said. “A condo that looked financeable last year may now need more documentation to qualify. Sellers, buyers, real estate agents, and HOA boards may all need to move faster and gather more paperwork early in the process. That extra time and scrutiny could slow down condo sales, especially in projects with low reserves or insurance problems.”
Christina Stockdale, a real estate agent with Real Broker, said moving forward, lenders will need to have an increased knowledge of the evolving requirements for condo buyers, specifically.
“It’s also going to be important to structure your offer correctly, whether that means longer loan contingencies or closing timelines, can make all the difference between losing a deal and getting your deal closed.”
Contact Patrick Blennerhassett at pblennerhassett@reviewjournal.com.
