D.G. from New Haven County, Connecticut writes:
Dear Mister Condo,
I am purchasing a condo and I was supposed to close on my loan today. However, the bank contacted me last week and informed that the condo is not currently meeting the 10% budget reserve required by the FHA guidelines. My loan is a conventional 30 year fixed, and is not FHA backed. Why is this guideline preventing me from receiving the loan? How likely is it that I can find another lender that may look past the reserve issue?
Mister Condo replies:
D.G., I am sorry for your mortgage loan closing troubles. I wish I could tell you that you are describing an isolated incident but the truth is that I am hearing more and more about missed condo closings due to mortgage issues every day. The government shutdown, which has effectively stopped condominium associations from renewing or applying for FHA certification certainly isn’t helping matters any. I am not certain how your lender is offering you mortgage money that isn’t FHA-backed (almost all are) but, clearly, they are still applying the same guidelines as an FHA-backed loan which makes sense as almost all lenders will turn around and sell your mortgage to a secondary market after your loan has closed. The secondary purchaser will certainly require that the loan is FHA eligible so that is the likely reason the condo’s lack of FHA certification has halted your loan from moving forward. Unfortunately, unless you can find a source for the mortgage that isn’t FHA-backed or reselling the mortgage to a secondary market, I think it is unlikely that you will find financing at this time. Once the federal government is reopened and the FHA is taking applications for certification, the current owner can ask the Board of the condo to seek certification. Of course, the Board is under no obligation to do so and may not even be able to if their Reserve Fund is not properly funded. This limits both buyers and sellers to purchasers who will either pay cash or secure funding through a non-FHA approved third-party vendor. I am afraid it isn’t pretty no matter how you look at it. Best wishes.