Project reviews on condo, co-op and planned unit development projects safeguard Fannie Mae’s interest in mortgages securing units in those projects. But a subset of detached condominiums called site condos has earned an exception from Fannie’s rigorous project risk review.
Site condos are not the usual condominium projects that house multiple units owned by individuals or families in a high-rise building or a smaller complex. More common in Michigan where the concept perhaps originated, a site condo more closely resembles a normal subdivision or a planned unit development with its strew of detached single-family homes.
Owners of site condo units are responsible for the maintenance of the land and its improvements. They don’t own common amenities such as swimming pools and fitness rooms with their neighbors, requiring little to no involvement from a homeowners’ association.
These unique characteristics of site condos appealed to Fannie Mae who no longer requires project reviews for site condos. This update has been incorporated in the latest Desktop Underwriter® Version 10.1 whose messaging system will tell lenders that a certain site condo does not require a full review.
As Fannie Mae aims for sustainable homeownership, more homebuyers will be encouraged to look into other options such as site condos for their first homes. With no project reviews, it would save them time and money in getting approved for a condo financing from Fannie Mae.
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No Project Reviews for Site Condos, Says Fannie Mae
Fannie Mae’s DU® released on July 29 will issue an updated message to lenders stating that if the subject property is a site condo, a review is not required.
This aligns the DU® with the Selling Guide that previously announced the removal of project review requirements for site condos and the use of SFC 917, a code stating that a unit in a project meets Fannie Mae’s definition of a site condo.
What Is a Site Condo?
Fannie Mae says a site condo will be exempted from a full project review if the unit meets its site condo definition and additional eligibility requirements.
A site condo is defined by Fannie Mae as a detached condominium unit in a project that has all these characteristics, as lifted from its Selling Guide.
1. All units in the project are single-family detached housing where each unit owner owns the land and its improvements.
2. The project must only have minimal common elements, e.g. limited undeveloped green space and project signage.
3. The project does not own any common amenities for fitness, recreation, or other purposes. These include but are not limited to playgrounds, swimming pools, clubhouses, and laundry facilities.
4. The project must not own infrastructure, nor will it be responsible for such maintenance, e.g. roads; street signs; electricity, water, and sewage; garbage disposal; and snow removal.
5. The project has minimal or no involvement with a homeowners’ association collecting: (i) little or no dues, (i) no special assessments; and (iii) no common element, amenity and road maintenance fees.
6. Site condo unit owners are to maintain their own hazard insurance, including flood insurance and liability insurance as per the project’s legal documents.
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Additional Requirements for Site Condos
In addition to meeting the definition above, Fannie Mae requires a site condo to meet these additional requirements to qualify for a no project review.
Fannie Mae places this responsibility on lenders who will have to determine the following:
1. The project complies with Fannie Mae’s requirements on:
- priority of common expense assessments whereby certain common expenses can have priority in payment over Fannie Mae’s first-lien mortgages securing condo units.
- Zoning for projects located in land designated for legal non-conforming use.
2. The appraisal through via Form 1004 or 1073 shows that the local market treats the units in the project as owning a unit in a single-family detached housing development not organized as a condo.
This is certainly a welcome development for mortgage borrowers looking into condos, as they could qualify for a mortgage without the attendant costs and project reviews.
Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.