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P&S with mortgage contingency enough to cover if OOR is an issue?

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Hi, 2 weeks ago we signed a P&S for a sale on a condo in an association with 15 units to be used as a primary residence. Our P&S has a mortgage contingency.  The condo association was represented to us as at least 50% owner occupied. We have just learned that the condo association is actually unable to report owner occupancy rates according to them. My guess is lenders will interpret this as below any sort of threshold they may have for lending and pull our financing. Are we at risk of losing our escrow if we can't get funding or will the mortgage contingency in the P&S cover us? The language of the contingency seems like boilerplate "best effort", "good faith" etc language.

Does anyone have experience with this?

If it matters, we are putting more than 40% down.

Thanks

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rated:
If you can't get mortgage, yes, the contingency should cover you.

"My guess is lenders will interpret this as below any sort of threshold they may have for lending and pull our financing."

Uh, what?!

Where is your realtor or RE attorney?

rated:
ZenNUTS, thanks for the response. This was our hope but there is quite a bit of money on the line.

I may have worded that incorrectly. We have been pre approved but are now actually going through the application process which is obviously a lot more strict. I have been doing some reading and it seems most lenders want to see a 50%+ OOR in condo associations and if not they will not lend. My interpretation of this policy is if we can't prove 50%+ via the condo association, which the lender views as the only source of truth on the matter, then the conservative thing to do as the lender is assume it is below 50% and so not approve the application.

That said, I'm not sure how our realtor would protect us from this.

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sophisticate said:   ZenNUTS, thanks for the response. This was our hope but there is quite a bit of money on the line.

I may have worded that incorrectly. We have been pre approved but are now actually going through the application process which is obviously a lot more strict. I have been doing some reading and it seems most lenders want to see a 50%+ OOR in condo associations and if not they will not lend. My interpretation of this policy is if we can't prove 50%+ via the condo association, which the lender views as the only source of truth on the matter, then the conservative thing to do as the lender is assume it is below 50% and so not approve the application.

That said, I'm not sure how our realtor would protect us from this.

  This is based upon FHA rules that allow the lender to re-sell the mortgage more easily. You *should* be able to find someone to finance the deal if the association doesn't qualify for FHA, but it will be more expensive to finance -- this assumes you weren't stretched to the limit on the debt to income ratios.

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If you have issues with the lender go to a mortgage broker, they will be able to find someone for you based on the situation.

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absolutely find a mortgage broker if you don't get approved by your bank. as a matter of fact, you should shop around via the mortgage broker in parallel to the bank

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Associations often restrict rentals to avoid falling below this 50% owner-occupied requirement, so I'd expect all associations to keep track of occupancy rates. If the association can't provide this information, you may be able to get a good estimate for yourself. In CA we have "homeonwer's exemption" (I think in MA it's called "residential exemption") which is only allowed for owner-occupied units, and many counties make property tax bills available for free online, so you could download the most recent tax bill for every unit and see how many of those bills list the exemption. This estimate probably won't be enough for the lender though, because it may be outdated.

If you can't get this information from the HOA, consider that it's not only more difficult and expensive for you to buy a unit there, but it's also more difficult to sell it. Therefore prices should be lower than comparable properties where the HOAs can provide occupancy information. If you are not satisfied with anything, you should be able to back out without any explanations and without losing any part of your deposit. Your deposit (aka Earnest Money Deposit) should not have been the entire 40%, it should have been just $1K, 1%, 3%, or whatever small amount is customary in your area.

Also unless you're uber-wealthy (did you marry rich or win the lottery since you posted in 2006?), don't put 40% down. Interest rates are relatively low, mortgage interest is tax deductible if you can itemize, and cash on hand is better than equity on paper (IMO). If you can't afford or qualify for the loan with just 20% down, you should probably look for a cheaper property.

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