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Condominiums are becoming more difficult to purchase and refinance as lenders increase fees and tighten regulations to offset what they say is the higher risk of lending to buyers of condos as compared with buyers of single-family homes.
The changes are part of an effort by mortgage giants Fannie Mae and Freddie Mac to limit risky lending in a segment of the housing market particularly hard hit by foreclosures in recent years.
<strong>In addition to paying higher fees to get a loan, prospective buyers now must make down payments of up to 20 percent </strong>because companies that traditionally insure lenders against borrowers who default are shying away from condos.
Amy Tierce, a mortgage lender at Fairway Independent Mortgage in Needham, said the restrictions and fees, which are in force nationwide, unfairly penalize homeowners in the Boston area, where condo foreclosures have not been as prevalent as in other parts of the country. It's particularly unfair to first-time buyers, who often opt for condos, she said.
"In the Greater Boston area, when you've got less money to spend, a condo is your only choice unless you want to commute two hours," said Tierce. "Everybody has gotten nervous about condos."
Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter, said the condo-buying crunch is a nationwide phenomenon. "It's almost as if condos have been blacklisted," he said. "Financing options are much worse on condos, and it is very difficult to refinance now."
"A person with good credit and qualifying income ratios, why is that person being additionally harmed because that person wishes to buy a condo property?" said Lawrence Yun, chief economist for the trade group.
One of the Fannie Mae and Freddie Mac lending changes is a <strong>surcharge equal to three quarters of a percent of the amount being borrowed.</strong> The agencies say the surcharge - which took effect April 1 - translates into about an eighth of a percentage point increase in an interest rate, although it could be higher depending on the borrower's credit rating and other financial details. To avoid the extra cost, anyone buying or refinancing a condo must provide a down payment of 25 percent, or demonstrate that they have equity of at least 25 percent in the property.
Brad German, a spokesman for Freddie Mac, said the point fee is meant to address the added risk of financing condos.
"The market has deteriorated, and the condominium market has become much riskier," German said. "We have adjusted our fees accordingly."
<a href="http://www.boston.com/business/personalfinance/articles/2009/05/23/new_rules_on_condo_loans_hindering_some_buyers/?page=full">New Condo Rules link</a>
The changes are part of an effort by mortgage giants Fannie Mae and Freddie Mac to limit risky lending in a segment of the housing market particularly hard hit by foreclosures in recent years.
<strong>In addition to paying higher fees to get a loan, prospective buyers now must make down payments of up to 20 percent </strong>because companies that traditionally insure lenders against borrowers who default are shying away from condos.
Amy Tierce, a mortgage lender at Fairway Independent Mortgage in Needham, said the restrictions and fees, which are in force nationwide, unfairly penalize homeowners in the Boston area, where condo foreclosures have not been as prevalent as in other parts of the country. It's particularly unfair to first-time buyers, who often opt for condos, she said.
"In the Greater Boston area, when you've got less money to spend, a condo is your only choice unless you want to commute two hours," said Tierce. "Everybody has gotten nervous about condos."
Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter, said the condo-buying crunch is a nationwide phenomenon. "It's almost as if condos have been blacklisted," he said. "Financing options are much worse on condos, and it is very difficult to refinance now."
"A person with good credit and qualifying income ratios, why is that person being additionally harmed because that person wishes to buy a condo property?" said Lawrence Yun, chief economist for the trade group.
One of the Fannie Mae and Freddie Mac lending changes is a <strong>surcharge equal to three quarters of a percent of the amount being borrowed.</strong> The agencies say the surcharge - which took effect April 1 - translates into about an eighth of a percentage point increase in an interest rate, although it could be higher depending on the borrower's credit rating and other financial details. To avoid the extra cost, anyone buying or refinancing a condo must provide a down payment of 25 percent, or demonstrate that they have equity of at least 25 percent in the property.
Brad German, a spokesman for Freddie Mac, said the point fee is meant to address the added risk of financing condos.
"The market has deteriorated, and the condominium market has become much riskier," German said. "We have adjusted our fees accordingly."
<a href="http://www.boston.com/business/personalfinance/articles/2009/05/23/new_rules_on_condo_loans_hindering_some_buyers/?page=full">New Condo Rules link</a>