Condominium ownership becoming more difficult
On March 1 of this year, new rules about the types of mortgages the government can purchase went into effect. There are also rising rates of default on condo fees. Combined, these two factors are making condo ownership one of the least attractive options for new home buyers.
New mortgage rules for condos
In order to underwrite mortgages or a short term loan on a condominium, banks will have to consider a new set of rules if they want to sell their mortgages to federal entities. The rules dictate that condo buildings must not have too high a percentage of renters, must not have pending litigation regarding the safety or habitability of the building and must have less than 15 percent of homeowners delinquent on their condo fees. The FHA is also requiring that apartment buildings that have been turned into condos be inspected, which costs $1,200 per building plus $30 per unit.
The new delinquency problem
During the housing boom, condos became a very popular option for new home buyers. Rather than handle the maintenance of a separated single-family home, condos offered the option of paying a monthly fee and having most maintenance taken care of. Most condo associations assume that between 2 and 5 percent of fees will go unpaid. In many associations, delinquency rates are approaching 40 percent or more. The average delinquency rate in the last year has gone up to 15 percent. This problem is forcing many condo associations to do what many homeowners are already doing — making hard choices about what to pay and what to defer.
Many condos left in limbo
Many condo associations are being left in an odd sort of limbo by these new regulations. Owners in these buildings are often blocked from re-selling their units because buyers cannot get financing or the association requires a certain percentage of units to be sold. Left unable to pay their rising association fees and, at times, their mortgages, condo owners also have no way to sell their property. This leaves strategic default and renting out the property they own, while paying for yet another place to live, two of the few options for condo owners.