Hi Everyone,

In trying to refinance my condo I discovered that Fannie Mae guidelines changed in April which now disqualify my condo from being Fannie Mae eligible. This basically means that no lender wants to come near it as it cannot be sold to "investors" (which 98% of of all loans are sold to).

The problem guideline says: "No more than 20% of the total square footage of the project can be used for nonresidential/commercial purposes." Prior to April, the guideline stipulated 25% (now 20%).

My condo is in a brownstone with 4 units, 1 of which is a commercial space. That means that 25% of the project is used for nonresidential purposes.

Apparently, a lender "may identify projects that merit special consideration even though the characteristics do not satisfy Fannie Mae eligibility criteria. Exceptions are on a project-by-project basis." However, I can't find any lender that's willing to even try to get an exception.

Please help as I cannot refinance given this new rule (I don't want to even think about what will happen when it's time to sell). Talk about a Catch 22! All ideas welcome.

Edit:
I'm in the Philadelphia area and can't seem to find a credit union that doesn't sell their loans to Fannie Mae or to another investor that follow Fannie Mae guidelines.

Edit:
I found this out on Friday when my refi lender called me with the bad news (I was supposed to close this week).

I'm surprised someone mentioned knowing this months ago since it's buried on page 509 of the Fannie Mae Sellers Guide and no loan officer I have spoken with is even familiar with this particular eligibility requirement. So if you don't know to ask the specific questions upfront (and insist that they check with the underwriters) you'll end up wasting a whole lot of time and money (not to mention a hard credit pull and interest rate risk) when the underwriters deny the application two days before closing.

I have >25% equity in the home.

Edit:
Many thanks to all the responses and help. I sincerely appreciate it.

The appraisal indicated a first floor commercial space but also noted that this setup was inline with the area and does not affect marketability. Apparently the underwriters and Fannie Mae disagree.

I am in the process of calculating actual square footage to see what the usage percentage based on square footage is. According to the tax record website and the condo docs all units are within +/- 100 square feet of each other. Does anyone know if I can include the common lobby and stairwell that is only used to access the residential units as "non-commercial" use for the purpose of the guideline?

I'm on the third and fourth floors of a converted brownstone so I'm fairly certain I'm not considered an "attached townhouse".

Do you have a relationship with a credit union (preferably a local one)? CUs are more likely than banks to keep loans in their portfolios (i.e., not sell them to Fannie/Freddy) and therefore might be more lenient in their lending standards.

What about an FHA Loan?

Timely and informative blog post on calculated risk:

Link

Almost all mortgage origination these days is backed by the government. Makes life very difficult for someone like OP who cannot get a conforming loan. Like others mentioned, OP will have to find a lender that holds the loan in its portfolio or otherwise disposes of it to an investor other than FNM.

I bought a condo through my local CU over the summer. You're right different rules on condos v/s homes, but I don't know if it's not Fannie Mae eligible.
From my experience: Whatever the current rate for a 30 yr fix loan is... add 3/8 of a point to it. (IE 30 yr is currently 5% on a home. a condo loan would be 5.375%) 15 yr loan do not apply to this 3/8 point add on. I went 15 yr at 4.75% b/c at the time, 30 yr would've been 5.75%! I also had to put a min. of 5% down since I went conventional loan.

They changed several rules on condos which are really screwing up the market. One of the other major ones is owner occupancy percentage.

I can see how they need to protect themselves from investor swampland condos in Florida, but they are dragging down many established, well run, and stable condo associations. They purport to want to establish affordable housing, but in my town the only truly affordable housing is in condos.

In MA, condos have a super-priority on fees and assessments. This means that even foreclosed units keep their fees current by the banks. This kind of rule countrywide would probably help out the whole industry and allow some of these absurd FNMA guidelines to go away.

Peanutguy,

I went and read the Fannie and Freddie Guidelines and both unfortunately are limited to 20% Commercial space in a project. I think you will be limited to a small bank in the area that will hold paper but I would be suprised that anyone would want to hold a condo loan because they are so dangerous right now.

What BPP is also talking about is a called a "Limited Review" for Condo's at certain LTVs. I believe you would qualify for a "Limited" review but the problem is that the appraiser will notate that there is commercial space on the appraisal and then you are dead in the water.

Sorry no-one does Non-Warrantable Condos anymore as BPP mentioned. That was a Alt-A product that collapsed 2 years ago. Thanks to all the condo losses that the lenders took in Las Vegas and Florida.

Are you 100% sure that your unit is a condo and not an "Attached Townhome?"?