Cohousing-L Mailing List: RE: FNMA: Loan to appraisal value

[Rob Sandelin (robsan]

Judy BAXTER%EPIHUB [at] VX.CIS.UMN.EDU asked


>Here's an interesting finance question for you all.  The mortgage banker who
>has been interested in working with us has suggested the following - he (they)
>work with us to see that we meet the requirements for FNMA loans, and certify
>to their lenders (I'm not sure what word they use here, for certify, and
>exactly what that means) that we meet them.  Then the lenders check it 
out, and
>go ahead as if FNMA approved, but with less cost, paperwork, and bureaucratic
>hassles.

The way banks operate is they loan money, then bundle up those loans in 
groups of about a million dollars and sell them to the secondary loan 
market, which then frees up that money to loan again.  It would seem 
that as long as the loan was "bundlable", that is it could be bundled 
and sold to FNMA or other secondary loan market lenders, it doesn't 
matter if you are FNMA approved.  Meeting FNMA requirements is 9/10ths 
of the issue anyway.  The majority of the paperwork that you will have 
to deal with will be making sure that your condo declarations include 
all the stuff that the banks care about. Once it does, you're just 
another condo to the bank.

Where this could be a problem is if on resale the buyer wants to use 
another bank. Mortgage brokers come and go and while this one might be 
here now to "certify" that your loans are resellable, will that still 
be the case five years from now?  This would be a good question to ask 
the broker.

One issue to be aware of is that the loan value to appraised value 
ratio is important.  Often Condos are appraised at lower values than 
other types of homes which means if your construction costs are higher 
than you thought, you will have to make up the overage yourselves.  
This can be a nasty little surprise which comes very late in the 
process. It is an acute problem for very small units.  For example if 
your bank appraises a one bedroom unit at $75,000 and it actually costs 
 $85,000 to build, the extra 10K gets added on as your downpayment 
requirement and so if they loaned at 85% of appraisal your downpayment 
would have to be 15% of the 75,000 + the $10,000 overage. This changes 
an $11K downpayment requirement into a $21K downpayment requirement.

Some groups have members who have more resources than others and it 
pays to identify places where members can get personal loans to cover 
high downpayment requirements.

One of the things that often gets overlooked or underestimated in the 
appraisal value of condos are the common elements.  If your appraisal 
is weak, check what they appraised the commonhouse and other common 
features at and negotiate that upwards if you can.  When we built the 
last house the appraiser did not factor in the value of the greenbelt 
and we were able to get this added (at its taxed value) which really 
helped boost the appraisal of the house.

The scary part of all this is that often you won't know the actual unit 
cost until it is mostly built and you will be working with estimates 
before then.  It really pays to have a contracting company that has a 
good track record for project estimation and this is something to ask 
about when you hire them.

Rob
Sharingwood