There can be sound reasoning behind refinancing a condominium mortgage: The owner's credit has approved; the condo's equity has increased; the owner's income has enjoyed a healthy boost; and mortgage rates may be going up.
Of all the projections on mortgage interest rates, there seems to be one common agreement: increases may begin shortly, but they'll be small in scale through the end of 2016. Homeowners have taken advantage of exceptionally low rates to refinance their mortgages, so why shouldn't condominium owners with unfavorable interest or terms join in? The truth is, they can, with a few major provisions that have to be met:
1. The condo is approved by Fannie Mae, Freddie Mac or the FHA/VA.
2. The condo association must meet owner-occupancy qualification requirements set by lenders.
Refinancing Hurdles: Approval and the Condo Association
In order to refinance a condominium, the unit and association must pass muster by Fannie Mae, Freddie Mac, and FHA. Conventional and FHA lenders take on additional risk when they refinance and consequently are firm about meeting guidelines. The percentage requirement refers to the number of owner-occupiers to empty units in the development.
In some cases, the association lacks approval because it has not met lender standards for property care and maintenance. The fix can be as simple: association directors may choose to increase insurance coverage to mitigate risk. Or it can be impossible: the association may not have sufficient reserves to pay for compliance upgrades and repairs.
Refinancing: Preparing for the Loan
The first step for a condo owner is to document their current loan payoff through their original lender. Consumer's debt-to-income and loan-to-value ratios help insurers establish the qualification ratio for refinancing approval. In addition to finding good credit scores and history, underwriters can be especially favorable toward re-fi applicants with condos that have accrued equity. Equity can go a ways when it comes to standard or cash-out refinances that require appraisals. If the community drags down prices, it can be difficult to secure a loan that is not guaranteed, owned or insured.
Streamline refinancing mortgages are also available to Fannie Mae/Freddie Mac-owned, FHA-insured or VA-guaranteed condo owners. With a streamline condo refinance, home appraisals are not required – hence the accelerated approval process.
After getting their loan payoff amount, the borrower should round up income and debt records and search for lenders.
Refinancing: Getting Loan Offers
There are mortgage lenders across the spectrum making loans to borrowers with top-credit ratings and to those with poor credit. For underwater condos, owners can seek "Relief Refinance" or Making Home Affordable (HARP) loans created to assist those with negative or no home equity. At the same time they seek offers from lenders, owners should contact an official with their condo association to have a frank conversation on how it measures up to compliance standards. How have other owners done when seeking refinancing? The association will receive a condominium questionnaire from prospective lenders as part of the qualification process, but knowing ahead of time can red flag potential problems with the refinance.
LendingTree can help condo owners evaluate the benefits of refinancing now through its Mortgage Checkup tool.