Why Can't I Get a Mortgage on This Florida Condo?

Quick version: when a lender says a Florida condo isn't eligible for a conventional loan, the problem can be the building, not your credit or income. With a condo, the lender reviews the whole project, including its repairs, its budget, its legal issues and how it's run. If the building doesn't meet Fannie Mae's project standards, the unit may not be eligible for that financing, even with a strong file.

With a condo, the lender is also judging the building

A loan on a house looks at you and the property you're buying. A condo loan adds a third piece: the project around your unit.

Fannie Mae's general project standards say that before delivering a loan on a unit in a project, the lender must determine that the project meets Fannie Mae's eligibility requirements. That review can run through Fannie Mae's own tools, such as Condo Project Manager or its Project Eligibility Review Service.

So two buyers with identical finances can get different answers on two units, simply because of the buildings they're in.

That's also why a preapproval doesn't settle the question on its own. A preapproval speaks to your finances, and how preapproval works is worth knowing, but the building still has to pass its own review.

What can make a condo building ineligible

Fannie Mae lists the problems in its guide to ineligible condo projects. Here are several that matter to a buyer:

Critical repairs. Projects that need critical repairs, including material deficiencies and significant deferred maintenance, are ineligible. That covers repairs that significantly affect safety, soundness, structural integrity or habitability.
Unsafe conditions. A building can be ineligible until an unsafe condition is fixed and the building is deemed safe for occupancy.
Inspection findings. If an inspection report shows unaddressed critical repairs, the project is ineligible until those repairs are completed and documented.
Special assessments tied to repairs. If a special assessment is linked to a critical repair and the issue isn't fixed, the project is ineligible.
Pending litigation. A project where the association is named in pending litigation may be ineligible, though some minor litigation can be acceptable.
How the building operates. Projects managed and operated as a hotel or motel are ineligible, even when the units are individually owned. Timeshare and fractional ownership projects are too.
Ownership concentration. In larger projects, a single owner holding too many units can make the building ineligible.

Fannie Mae also expects the association's budget to fund replacement reserves for capital expenditures and deferred maintenance. A thin reserve line can be part of why a building doesn't pass.

Why Florida buildings can run into this

Coastal condo buildings face salt air, humidity and storms, and age adds wear on top of that. Keeping up can mean structural inspections, large repair projects and special assessments to pay for them.

When a building is in the middle of that work, it may not be eligible for conventional financing until the repairs are finished and documented. That can be true even when the unit itself looks perfect.

None of this means a building is a bad place to live. It means the financing may have to wait, or take a different path.

What to ask the association before you offer

You can save yourself time, and inspection and appraisal money, by asking a few questions before you write an offer. Your agent may be able to help you get these answers from the association or its manager.

Are there any critical repairs planned, underway or recommended in a recent inspection?
Has the building had a structural or other inspection recently, and can you see the report?
Is there a special assessment now, or one being discussed? What is it for?
Does the budget set money aside for reserves, and is there a current reserve study?
Is the association involved in any lawsuit?
Does anyone own a large share of the units, and are units rented short term like a hotel?

If the answers point to open repairs or litigation, ask your lender to check the project before you spend money on the unit.

If the building isn't eligible for a conventional loan

A conventional "no" isn't always the end of the road, but the options depend on the building and your situation.

Wait for the repairs. A project can become eligible again once the issues are fixed and documented. That may not fit your timeline.
Ask about FHA. FHA has its own condo rules. HUD announced single-unit approval so FHA could insure loans on selected units in projects that aren't FHA approved. Whether a given unit qualifies depends on the project and the lender's review.
Ask your lender what else is possible. Ask whether any other financing could work for this building, and what its terms and tradeoffs would be. The lender will need to determine what fits your file and the building.

Each path has different costs and requirements, so compare them with a lender before you commit to one.

Your next step

If you're shopping for a condo in Florida, learn how the building looks to a lender before you fall in love with the view. Diane's Florida mortgage page is a good place to start.

Not sure where you stand yet? Take the homebuyer quiz and get a clearer picture. You can also reach Diane at 719-687-2112.

Diane also helps buyers in Arizona, Montana and Florida.

Diane Beaumont, Mortgage Loan Originator, NMLS #247026. Benchmark Mortgage, a dba of Ark-La-Tex Financial Services, LLC, NMLS #2143. Equal Housing Lender. Not a commitment to lend.