When applying for co-op financing, our buyers and clients may be approved for a mortgageâ€•but the co-op that they are buying into may not be.
Since most lenders sell their notes to the Federal National Mortgage Association (Fannie Mae) they must follow the specific guidelines set by the investor. The guidelines usually require that a co-op be financially solvent, have adequate insurance coverage and have a owner occupancy of 51 percent or more. Financial statements usually need to be audited, signed by the accountant and must be completed at the end of every year. All insurance must be current and the certificates need to show all coverages including: property, boiler/ machine, general liability, umbrella, fidelity and flood.
”Federal National Mortgage Association (Fannie Mae) is a government-sponsored enterprise (GSE) chartered by the United States Congress to support liquidity and stability in the secondary mortgage market, where mortgage related assets are purchased and sold.
The company’s activities include providing market liquidity by securitizing mortgage loans originated by lenders in the primary mortgage market into Fannie Mae mortgage-backed securities (Fannie Mae MBS), and purchasing mortgage loans and mortgage related securities in the secondary market for its mortgage portfolio. It also acquires funds to purchase mortgage related assets for its mortgage portfolio by issuing a variety of debt securities in the domestic and international capitol markets. It also makes other investments that increase the supply of affordable housing. The company is organized in three business segments: Single Family Credit Guaranty, Housing and Community Development (HCD), and Capitol Markets (Federal National Mortgage Association).
For the most part, if Fannie Mae guidelines are met, there should be no problem in getting your co-op approved. However, if a lien or violation shows up later in the process, the deal could end up being delayed—or in a worst-case scenario, denied by the lender entirely. For this reason, it is a good practice to know as much as you can about the condition of the co-op and whether there are any pending litigations or violations that need to be addressed promptly.