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Fanne Mae Guidelines for Homeowner Associations
For an established project, no more than 15 percent of condominium/association fee payments can be more than one month delinquent. Lenders must review the homeowners' association budget (the actual budget for established projects or the projected budget for new projects) for all projects except two-unit to four-unit projects. This review must determine that the budget is adequate (i.e., it includes allocations for line items pertinent to the type of condominium), provides for the funding of replacement reserves for capital expenditures and deferred maintenance (at least 10 percent of the budget), and provides adequate funding for insurance deductible amounts. Any project or building that is owned by several owners as tenants-in-common, or by a homeowners' association in which individuals have an undivided interest in a residential apartment building and land, and have the right of exclusive occupancy of a specific apartment in the building.
The project must not be a manufactured housing project. All rehabilitation work involved in a condominium or cooperative conversion must have been completed in a professional manner.
Underwriting Considerations, including but not limited to, the following requirements:
- All units, common elements, and facilities within the project must be 100 percent complete, and the project cannot be subject to additional phasing or annexation.
- At least 51 percent of the total units in the project must have been conveyed to owner-occupant principal residence or second home purchasers. However, this requirement shall not apply when a lender delivers a mortgage to us that is secured by an owner-occupant principal residence or second home.
- Lenders must review the homeowners' association actual budget to determine that it is adequate (i.e., it includes allocations for line items pertinent to the type of condominium), provides for the funding of replacement reserves for capital expenditures and deferred maintenance (at least 10 percent of the budget), and provides adequate funding for insurance deductible amounts.
- No more than 15 percent of condominium/association fee payments can be more than one month delinquent.
- No single entity (the same individual, investor group, partnership, or corporation) may own more than 10 percent of the total units in the project.
- No more than 20 percent of the total square footage of the project can be used for nonresidential purposes.
- All facilities related to the project must be owned by the unit owners or the homeowners' association. The developer may not retain any ownership interest in any of these facilities. In addition, the amenities and facilities-including parking and recreational facilities-may not be subject to a lease between the unit owners or the homeowners' association and another party.
- The individual units should be separately metered. If they are not, the project's plans should provide for the ready adoption of unit metering.
- The units in the project must be owned in fee simple or leasehold, and the unit owners must be the sole owners of, and have rights to the use of, the project's facilities, common elements, and limited common elements.
For a new condominium project, the project must comply with the general eligibility requirements for all projects, as listed above, including but not limited to, the following requirements:
- The project, or the subject legal phase, must be "substantially complete." This means that a certificate of occupancy (or other substantially similar document) has been issued by the applicable governmental agency for the project or subject phase and that all the units in the building in which the unit securing the mortgage is located are complete, subject to the installation of "buyer selection items" such as appliances.
- At least 51 percent of the total units in the project or subject legal phase must have been conveyed or be under a bona fide contract for purchase to owner-occupant principal residence or second home purchasers. For a specific legal phase (or phases) in a new project, at least 51 percent of the total units in the subject legal phase(s), considered together with all prior legal phases, must have been conveyed (or be under contract to be sold) to owner-occupant principal residence or second home purchasers. For the purposes of this review process, a project consisting of one building cannot have more than one legal phase.
- Lenders must review the homeowners' association projected budget to determine that it is adequate (i.e., it includes allocations for line items pertinent to the type of condominium), provides for the funding of replacement reserves for capital expenditures and deferred maintenance (at least 10 percent of the budget), and provides adequate funding for insurance deductible amounts.
- No single entity (the same individual, investor group, partnership, or corporation), other than the developer during the initial marketing period, may own more than 10 percent of the total units in the project.
- No more than 20 percent of the total square footage of the project can be used for nonresidential purposes.
- The units in the project must be owned in fee simple or leasehold, and the unit owners must be the sole owners of, and have rights to the use of, the project's facilities, common elements, and limited common elements.
Project consisting of two to four units, the project must comply with the general eligibility requirements for all projects, listed above, including but not limited to, the following requirements:
- No single entity (the same individual, investor group, partnership, or corporation) may own more than one unit within the project.
- All units, common elements, and facilities within the project - including those that are owned by any master association - must be 100 percent complete.
- All but one unit in the project must have been conveyed to owner-occupant principal residence or second home purchasers.
- The units in the project must be owned in fee simple or leasehold, and the unit owners must be the sole owners of, and have rights to the use of, the project's facilities, common elements, and limited common elements.
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