The claws of the banking machine started to loosen their grip on credit not all that long ago. People can actually get some money to buy a house. It’s not easy—certainly not like the wild years that led to the crash—but people are getting loans.
But the scars of that period remain. Foreclosures are in the rear view mirror, but still not out of site. Everyone knows how to do (or how to refer) a short sale. We know that underwater doesn’t just refer to a sunken ship.
As the economy continues to right itself, we have an opportunity to have an impact on a lot of problems at once—provided that the banks play their role. We are trying to be greener, trying to be less dependent on the volatile Middle East oil supply, trying to change the way we get around in this world. All of these things point to one issue that has to get some attention: urban development. Demographic trends point strongly to a willingness by more and more to want to live in our cities. We need to house them.
To successfully house people in an urban environment, we have to think about density and about verticality. And if we’re going to talk about those two things in conjunction with healthy development practices and home ownership, then we have to talk about condominiums.
Unfortunately, lending practices dictate otherwise.
Banks need to be more accommodating to condo lending. Period. The requirements put onto condo lending call for unrealistic “pre-sold” requirements, interest rate add-ons, lower loan-to-values, a maximum number of investor owned units, AND condominium dues are counted against qualifying ratios. Bottom line: condos require more cash in the bank, more in your weekly paycheck, and you shouldn’t bet on being able to be the first one in a new building.
These rules might not feel so outrageous if they were applied to single-family housing, too. But they’re not. There is not a pre-sold requirement in any single-family neighborhood. Investors have no limit to the number of homes they may own in any given single-family neighborhood. There aren’t interest add-ons or any of the other underwriting requirements applied to condos.
And, then, the kicker…condo dues typically contain some utility costs and a repair reserve in the budget. This is not accounted for in single-family loan underwriting.
Really? A single-family home doesn’t need repairs? The owners have the option of using or not using water and sewer?
It is literally that foolish.
It’s time to stop penalizing people for wanting to live in an urban environment, who are making an impact on our environment by choosing vertical living.
While I personally believe that we should be allowed to live where we wish (this is America, right?), those who loan money feel otherwise. Fannie Mae and Freddy Mac have spoken and they would prefer you live in the suburbs.
See you in traffic.