By Keith Furer, Guardhill Financial
Be a smarter investor by understanding how lender approvals on buildings work.
Whenever someone gets a mortgage on a unit within a coop or condo, a lender must not only approve the borrower, but separately approve the building. Like the borrower, a coop or condo must also meet certain requirements in order for a lender to place a mortgage on a building unit.
Specific lender requirements on buildings vary not only between lenders themselves, but also between condos and coops.
Examples of Lender Requirements on Coop and Condos:
– stable financial standing
– acceptable owner occupancy rates
– valid and up-to-date building insurance
– maximum commercial square footage
– absence of major litigation
But what’s actually involved in the approval process of a coop and condo by a lender?
Sometimes a lot, and sometimes very little.
To help demystify the process, the following are the main steps typically carried out by a mortgage professional like myself:
1. Check the Systems, Get Management Contact Info
My first step is to do a check of the building address in various online systems to see if the project has been approved or declined in the past by any lenders. Depending on how up-to-date the information is, that could determine whether it is wise to proceed with the purchase or not.
If a coop or condo shows up as approved with most lenders, including recently updated financial information, etc., that may be all the information that’s needed, depending on which lender will make the mortgage. However, this is rare, as there is usually at least one supporting document in need of updating.
The contact information of the building’s management is always required, regardless of whether it is professionally managed or self-managed. The real estate agent representing the property and your attorney will typically have this information. Most management companies today charge at least a nominal fee for coop and condo documents.
2. Getting & Submitting the Core Information
Assuming a coop or condo needs updated documents, my team will then contact the management entity to get the standard information, including two years financials, a building questionnaire, and underlying project insurance. These can offer a fairly complete picture of a building’s status, but sometimes other documents are required, like a recent budget and offering plan.
The financials show the overall financial health of a condo or coop, the budgeting, the reserves, etc. Two years are required so a building can demonstrate a more complete snapshot of its most recent results.
The coop or condo questionnaire contains all the basic information about the building, including everything from information on occupancy levels to initial sponsor information, to the underlying mortgage, and much more. The questionnaires typically run two to three pages.
Once we have the required documents, my team submits them to the applicable underwriting department along with the borrower documents. Quite often we are able to have the project approved or re-approved prior to the buyer signing the contract.
3. Proactive & Precision Follow-up Required
Whenever anyone gets a mortgage on any type of property, there are a lot of moving parts that have to be in place in a timely manner for that mortgage to close. My team and I move quickly across all the channels of the process, particularly when it comes to coop and condo approvals.
It is vital to be proactive with these approvals, because in some cases, they can drag out, and that can push back closing dates, which nobody likes or wants. Whether it’s coop or condo documents that are in the midst of being updated, or extended turnaround times for receiving documents, I’ve witnessed a lot of unforeseen delays.
In the cases when we come across any potential red flags for a coop or condo, like low occupancy rates or upcoming assessments, we communicate them with our clients and their attorneys and address each one head-on with the underwriters. Just because there’s a red flag doesn’t necessarily mean that there’s a problem, it just means there’s a matter to be resolved. The earlier red flags are identified and addressed, the smoother the whole process goes, and increases the likelihood of closing without delay.
Sometimes the coop and condo approval processes can be quick and sometimes they can drag on. Make sure you have the right team working for you to be proactive and help insure that you close on time.
Guest blog entries are for the benefit of the real estate community and do not necessarily reflect the views of this law firm.