What are the Differences Between Limited Review & Full Review Condo Approvals?
Fannie Mae/Freddie Mac offers two categories of Condo Approvals: Limited Review & Full Review. A Limited Condo Review is a streamlined program offered by Fannie Mae & Freddie Mac for loans categorized as lower risk. Condominiums underwritten under the Limited Review program are several times MORE LIKELY TO BE APPROVED than those submitted under the Full Review program. In South Florida for example, less than 10% of loans submitted for full condo review will receive condo approval & close. For this reason, knowledgeable borrowers often opt for a Limited Review Condo Loan.
Limited Condo Review: What Types of Loans Are Eligible?
Conventional Fannie Mae & Freddie Mac Loans
Primary Residences & Second Homes Only (Investment Properties are ineligible).
Available for Purchase, Rate & Term, and Cash-Out Refinances.
Credit Score is not a consideration in determining Limited Review eligibility.
Available only for loans meeting the following Loan-To-Value requirements:
Limited Review LTV/CLTV Requirements
(All States EXCEPT Florida)
Primary Residence – Maximum 90% Financing
Second Home – Maximum of 75% Financing
Investment Property – Maximum of 75% Financing
Limited Review LTV/CLTV Requirements
(Florida Properties)
Primary Residence – Maximum of 75% Financing on a 1st Mortgage. 90% Combined Financing on a 1st & 2nd Mortgage
Second Home – Maximum of 70% Financing. on a 1st Mortgage. 75% Combined Financing on a 1st & 2nd Mortgage
Investment Property – Maximum of 70% Financing. on a 1st Mortgage. 75% Combined Financing on a 1st & 2nd Mortgage
Limited Condo Review: Basic Condominium Requirements
Streamlined Condo Reviews require less documentation and have easier project underwriting standards than Full Review approvals. Many lenders have additional requirements above and beyond what Fannie Mae & Freddie Mac require. For this reason, a condo loan may be denied by the major banks yet still eligible for approval by Foundation Mortgage. Below is a list of some of the basic requirements a project must meet to receive a Limited Review Approval.
HOA General Liability Insurance Coverage of at least 1MM required
Fidelity Insurance required for projects over 20 units
Flood Insurance required as determined by flood zone.
Lawsuits involving structural litigation are not permitted (unless the lawsuit is over the recovery of costs for repairs already completed).
- Limited Review Condo Questionnaire confirming:
No hotel services/nightly or weekly rentals/mandatory rental pool.
No single entity owns greater than 10% of the units of the building.
Small 1-4 unit condo projects are eligbile as long as no individual owns more than 1 unit.
5-20 unit condo projects are eligible as long as no individual owns more than 2 units).
Commercial space does not exceed 25%
For new condominium projects, 90% of the units must be sold and control of the HOA must already have been turned over to the owners.
Full Condo Review: What Additional Items Are Needed That Are Not Required For a Limited Review Approval?
Full Condo Review requires a much more vigorous underwrite of the project. The additional items reviewed under the Full Review program ultimately result in the denial of many projects that would be approved under the Limited Review Program. Below is a list of the most common items that cause a Fannie Mae & Freddie Mac Full Condo Project Review to be denied.
Association Budget & Balance Sheet
The current year approved budget must show that 10% of the operating expenses are to be allocated to a reserve account.
A reserve study in lieu of 10% reserves allocated from the current year budget may be considered if prepared within the past 24 months by an independent 3rd party with expertise in Condominium Project Reserves.
No more than 15% of the unit owners may be more than 60 days delinquent on their monthly HOA dues or special assessments.
No more than 50% of the units can be investor occupied for Fannie Mae Loans.
No more than 49% of the units can be investor occupied for Freddie Mac Loans.
Best Practices – How Do I Know Whether I Should Apply for a Limited Review or Full Condo Review Loan?
There are several best practices to follow when shopping for condos & deciding whether to apply for a limited review or full review condo loan approval. Following this best practice list will help you evaluate which approval option your project is eligible for, and answer any uncover potential problems as early in the loan process as possible and enable you to change programs if necessary- before it’s too late.
Do a quick google search or ask your realtor whether the condo offers hotel services or centralized rentals.
Ask for a copy of the approved budget BEFORE you make an offer. The budget is one of the most common reasons a condo project is denied under the Full Review program. It is usually very easily attainable at no cost from the seller’s realtor or the association and is a quick indicator whether the project may be eligible for a Full Review approval or not.
Ask for a copy of the insurances:
Master
Flood (if applicable)
Fidelity (if the project has greater than 20 units)
Law and Ordinance
The insurances are also typically relatively easy to obtain at no cost. A quick review of the insurance basics by a Foundation Mortgage Banker will let you know if there are any obvious deficiencies that would prevent eligibility for Limited or Full Review approval and require you consider other non-traditional non-warrantable options.
Ask for copies of any pending litigation the association is involved in.
Your Foundation Mortgage Banker can review open litigation for cases pertaining to structural litigation or lawsuits that might threaten the liquidity of the operating budget which could impact the project’s approval.
Order A Condo Questionnaire
If the above items appear to meet guidelines, make sure a condo questionnaire is ordered at the beginning of the loan process. The association may charge anywhere from $75 - $250 for the Condo Questionnaire. The Condo Questionnaire will contain more detailed information impacting project approval. Obtaining this information at the start of the process will help you determine whether there are any problematic items early in the process.
Make sure you select your insurance agent (for your HO6/Contents Policy) at the beginning of the process. Most Lenders will not submit the condo approval information to their condo review department until the complete package is put together. This includes your contents policy.
If you are financing in Florida and the condo is ineligible for a Full Review Approval, but you want or need to make a small down-payment for a purchase or have limited equity for a refinance loan, consult with a Foundation Mortgage Banker to consider splitting up the financing into a 1st and 2nd mortgage. Reducing the 1st mortgage LTV to 75% for a primary residence or 70% for a second home and taking out a 2nd mortgage may help you accomplish your goals and bypass Full Project Review requirements.
