What’s going on with financing on St. Louis Condos?
Financing Condos in St. Louis
There is a serious financing problem with condos in St. Louis and throughout the country. A little background… lenders love homebuyers to have 20% down. These loans have very little risk. When you put down less than 20%, lenders typically require that you get PMI, or Private Mortgage Insurance. PMI is an insurance policy, paid monthly (rates based upon loan amount and credit scores — usually about 0.7% of the loan amount annually), that insures your loan in the event that you default.
Recently, PMI companies have decided to stop insuring condo loans in “distressed” markets. Distressed markets are housing markets that will likely continue to see declines in home value values. Mortgage investors are considering St. Louis a “distressed” area in terms of home values. We are not alone in this.
Bottom line is this: If you want to buy a condo in St. Louis, you must have 20% to put down. Conversely, if you need to sell a condo in St. Louis, you will have to find a buyer who can put 20% down. The ramifications are obvious, aren’t they? It’s going to take a long time to find a buyer.
FHA is an answer to this problem. FHA continues to loan 96.5% of the purchase price to qualified buyers — even on condos. Here’s the catch: Not every condo complex is FHA approved. FHA loans are only available on select developments.
The other answer to this crisis is the portfolio loan. The portfolio loan is a loan from a smaller bank that will keep the loan in house and not sell to Fannie Mae or Freddie Mac. Because they are not selling off the loan, they are able to make their own decisions on whether or not to loan. Typically the rate will be higher and the terms less beneficial to the owner.
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