Marble: Why I Want New Construction

Everyone wants their marble. And cabinets. And floors. And bathroom fixtures.

Homebuyers love new construction. Especially new condominiums. They are the first people to live in the unit and, usually, get to choose their amenities and other aesthetic aspects of the unit.

As one of the best Chicago real estate agents mentions in a recent post, the buyer needs to follow certain steps as a precaution when working with the developer.

Stop right here. Before even writing a contract, the buyer (really the real estate agent) should make sure that the loan officer knows if the condo is warrantable or nonwarrantable.

Did you hear that silence? That’s the pause that most borrowers, and many agents, have when I ask them this question. When I first talk to or meet with a borrower, and they tell me that they are purchasing a condo, I always ask, “New construction? OK. Is it warrantable?” Really, what I am asking is a short list of questions about the complex.

Basically, Fannie Mae and Freddie Mac have guidelines for the kinds of condos that they will accept. A lender must warrant (or, certify) that a condo complex follows these guidelines. The most important of the guidelines requires a certain percentage of units must be either under contract or closed (sold). If you think about it, a brand new 200 unit complex is a greater risk than a 200 unit complex that was built 30 years ago and all the units have owners. What if, in the new complex, only 10 units get sold in the first 2 years? And only 15 units total in 3 years?  The developer could have a problem paying his/her bills (loans!) which could cause a problem for the complex itself. Many lenders do not want to take this risk, and so they will only offer programs for warrantable units, where at least 70% (for example) of the units are sold.

But, you are thinking, what if I am the first one to write a contract and close in this bright shining 200 unit complex? You need to make sure that your loan officer has programs for nonwarrantable condos. It’s that simple.

In addition, there is the misconception that programs for nonwarrantable condos bring higher interest rates.  Not necessarily true.  Some lenders do have a limited number of programs for nonwarrantable condos, but in general the rate really should not be higher.  

And ask questions about this. Get a sense that the loan officer understands the concept of warrantability. There’s a little more to know, but your loan officer should be aware of the items to check.

So the punch list starts with the loan program. Then the marble. And thanks Jeff for a great topic.

 

 

6 April 2007 | First Time Homebuyers, Real Estate (Agents), Loan Officers, Chicago Stuff, Programs | Comments

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