According to the San Francisco MLS, the median sales price for all types of San Francisco property combined the past year through August was up 13.1 percent. As usual, this number makes sellers happy and buyers anxious.
The unfortunate result of this continued price increase is there are buyers who no longer can afford the medium-priced $1 million single-family home. Many buyers are not willing to leave San Francisco, but they choose to let go of their dream to own a single-family home and opt to buy a condominium. Making the psychological switch is the first step. However, there are additional steps that must be considered.
Though a buyer might be qualified for a loan on a single-family home, the next step is qualifying for a mortgage on a specific condominium. Rates are a bit higher, plus there might be additional conditions to meet.
Normally I leave discussions about loans and financing to mortgage brokers and bankers, because there are so many variables to be considered when applying for a loan. Many home buyers do not realize that rates are not the same for different types of property. In residential real estate, lenders have additional rules or conditions to consider when lending on a condo.
In condominium buildings, there are multiple owners responsible for the care of the building. This creates additional risk for the lender, and it is not surprising that there are additional conditions to be met. Not all lenders will finance all condominiums.
Here are questions buyers need to ask before making an offer on a condominium:
- Is the building in litigation? This should be noted online in the MLS listing.
- What percent of condos in the building are rented? An exact number is best.
- Are there owners in the building who own multiple units? If so, how many units are owned by one owner? In larger buildings, there may be more than one owner owning more than one unit.
- Is there any commercial space in the building?
- Are there owners who are behind in their homeowners’ association (HOA) dues? If so how many?
- Is the HOA reserve fund fully funded?
- Was the building originally built as condo or converted from a multiunit building? If it was converted, how many years has the building been condominiums? In San Francisco where buildings are converted from TIC’s, if the building was converted recently it may be an issue.
These questions should be answered in the disclosures. However, there is no reason to wait for a disclosure package to get answers. It is possible to ask the seller’s agent these questions when you first meet.
Why should you be proactive collecting information about a condo?
What if the answers to these questions are not all “no”? The trick is to be prepared. When you first speak to a mortgage broker or banker, ask about the programs for loaning on condos. In San Francisco it is a good idea to use a lender with a wide variety of programs to meet your needs.
In recent months, the number of days to close of escrow has shrunk from 30 days to 21 days to as little as 15 days. In a short escrow, every minute counts. There is no time to look for a new lender when new disclosure information turns a done deal into a deal breaker.
In today’s sellers’ market, it is more important than ever to immediately collect detailed information about a building under consideration. Before making an offer, double check with your lender to make sure there are no obstacles to obtaining a loan. Keep in mind that individual bank rules change and because one bank won’t loan on a condo building does not mean it is a bad building. It simply means the bank chooses to lend money to a specific group of properties and the building is not in that group.
The dreaded words a buyer does not want to hear 10 days into escrow is “I am sorry, but we cannot loan on this building because …”
This situation can be avoided if, when you first speak to your mortgage broker or banker, you give them my list of questions and ask what conditions must be met to approve a loan on a condo. In San Francisco and the Bay Area, it is possible to find a loan for a condo with just about any imaginable situation. If you don’t know which way to turn and need a recommendation for a mortgage broker or bank, please call or send me an e-mail and I will give you a list for your consideration.
