Going zero down in a university area?
The days of 0% down have almost evaporated just as quickly as they came onto the scene several years ago. However, it has always been somewhat difficult to discover low money down programs in university real estate markets. In fact, most university areas posses some unforeseen obstacles that might not exist in other markets. It’s called warrantability. If you’re buying a house, it’s not something to be overly concerned about. But for most buyers looking in university markets, their price range limits them to a condo or townhome. Lenders evaluate risk on loaning money for certain properties based upon a specific criteria. Meeting this criteria is also required for the loans to be “conforming” and thus able to be sold on the secondary market.
Warrantability is affected by two primary indicators. The first looks at how many of the condos within a given complex or community are owner occupied and how many are investor owned. Typically, lenders want to see that over 50% of the ownership within a complex is held by owner occupants. The second indicator is how many units are owned by one single investor. If a single investor owns more than 10% of a complex it gives that investor an uncomfortable level of influence over voting issues. Condos are held as TIC’s or Tenants in Common. It’s a democracy of sorts that is governed by a set of approved by-laws. Any changes to those by-laws must be approved or voted on by the owners. An investor has one thing in mind, bottom-line. An owner occupant may have another, such as preserving the appearance, security, etc. So, if an investor is able to acquire a majority stake in a complex, whatever he wants goes. You can see how lenders are a little nervous with any one person having that much power over the value of their investment.
It’s easy to see why warrantability becomes such an issue in college real estate markets. Due to the number of investors who favor these stable markets, you get an unusually high level of investor owned properties.
Some condo communities do qualify for less than 20% down, but make sure that your real estate agent knows which ones those are if you are depending on going the low money down route. If the complex is warrantable OR you end up buying a house, the FHA offers one of the best loan products on the market called The Kiddie Condo. The kiddie condo program deserves its own post and explanation. So stay tuned for that one to come.