One broker says a month-long delay cost her friend a full point on his rate
Condo rule changes by Fannie Mae and Freddie Mac have led to a surge in non-QM lending on those properties, especially in Florida. However, borrowers may not fully understand these products.
Florida condo buyers could end up needing a non-QM loan without knowing it, and the time it takes to find out can cost them.
New condo review rules for conventional loans could leave more buildings outside agency eligibility, and buyers who count on a conventional loan can lose weeks before anyone checks, according to one mortgage broker.
Jacy Bloom (pictured top), owner and mortgage broker at Bloom Mortgage Solutions, said the shift is already changing how she works with condo buyers.
"People are going to have to embrace non-QM if they want to do condos, because I think more and more of them are going to fall into that bucket, especially due to that reserve requirement," Bloom told Mortgage Professional America.
A month lost to a condo
Bloom said a friend of hers was under contract on a condo and financing it through an out-of-state bank. The bank told him the building was fine, and she had her doubts.
"I'm just telling you, I don't think this condo is going to work conventional," Bloom said she told him. "I haven't done one in it yet, but I would assume it's non-warrantable."
About a month later, the bank turned him down. Bloom said his rate rose by a point as the loan was pulled and rates moved higher.
"I was like, yeah, because they probably had to pull the loan, now rates have gone up," Bloom said. "That's probably what the rate's at."
The building was a downtown project, she said, and she wasn't surprised by the outcome.
"My gut feeling is telling me that this is not warrantable," Bloom said. "I'm hoping I'm wrong. But I know most of them aren't."
That is a scenario she tries to avoid. Her fix is to vet the building and its homeowners association (HOA) first.
"Obviously I try to get in front of it before they even go under contract to make sure whatever loan program I'm putting them in is going to work," Bloom said. "So I do contact the HOA."
The out-of-state bank didn't, she said. In this case, the trouble was in the HOA's finances.
"There was no reason why they couldn't have just called the HOA, gotten a copy of the budget, because that was what the problem was, saw that the budget wasn't in line, and then put them in a non-warrantable," Bloom said. "But, you know, the person he was working with wasn't educated enough, and it's ridiculous that it took them a month to figure this out. That's not fair to the client."
What buyers should know
Fannie Mae and Freddie Mac are raising the reserve requirement for condo associations from 10% to 15% starting Jan. 4, 2027. Bloom said more condos will land in the non-warrantable category as a result.
The shift isn't all bad news for buyers, she said. Some may come out ahead, though the process looks different.
"I don't say jump through more hoops because in some cases maybe the non-QM financing is better anyway," Bloom said.
The shift stings most for borrowers with little to put down, she said. Those are often first-time buyers.
"It is kind of sad for some first-time buyers that might be putting the minimum down payment," Bloom said. "If they're putting 3%, 3.5%, or even 5% down, there's no non-QM condo financing that allows that. They need a bigger down payment."
On the positive side, she said, some of the changes make smaller buildings easier to pass through. That would point those buyers toward other buildings.
"They'll have to look at different types of condo projects that aren't going to be scrutinized the same way," Bloom said. "Some of those are lower priced too because they aren't high-rises or even mid-rises. They're like one- or two-story kind of condo projects."
Condos make up about 15% of her business, Bloom said, and she thinks that share could rise. One of her loan officers has seen condos make up 60% or more of his loans over the last three months.
"We've made a spreadsheet of like every single condo on Siesta Key," Bloom said. "We know which is warrantable, which is not. Pretty much all of them are non-warrantable. Some of them are considered condotels. I'd say the majority of them are."
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This article is part of our Monthly Spotlight series, which in October focuses on non-QM loans. Full coverage can be found here.
