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Whether you are looking to buy a condo or refinance a townhouse, be prepared for a cold and costly reception in lender land. Sinking values, oodles of overbuilding and a clamp- down on condos bought as investment properties has spurred lenders and private mortgage insurers to introduce new risk-based fees for all “attached” homes, such as condos and townhouses.

The federal government is the main cog in the imposition of these new mortgage fees. In the midst of the credit crisis Fannie Mae has emerged as the only major venue for securitizing mortgages; lenders who want to be able to sell pools of mortgages need to adhere to Fannie’s lending guidelines. And Fannie is not grooving on the condo market right now. The new Fannie condo fees include:

  • A 0.75% fee slapped on your closing costs for a Fannie-backed loan if you have less than 25% equity in a condo or other “attached” property.
  • If your condo is an investment property you will pay a Fannie fee no matter how much equity you have. With 25% or more equity it’s “just” 1.75% extra; with equity below 25% the fee goes up to 3.75%.

If you have less than 20% equity you could also run into the private mortgage condo roadblock. The pmi industry is raising its lending requirements across the board-higher credit scores, more equity required for single family homes as well as attached housing-but condos get hit hardest. For example, PMI Mortgage Insurance Co. refuses to do any business-no matter how high your credit score-insuring condo loans anywhere in the state of Florida.

Elsewhere in the country it might be willing to help you out; but if you live in an area on the firm’s “distressed” list you still must have 15% equity. In the boom days 3% to 5% down was all you needed to get a loan and cover the rest of the down payment with private mortgage insurance. And if your condo is an investment property, PMI does not want your business no matter where in the country you live or how high your credit score.

Thinking an FHA-insured loan might be the way to go with refinancing your condo? After all, the maximum FHA loan limit is now as much as $729,750 in high-cost areas and all you need is a 3.5% down payment. Well, the FHA is just as circumspect insuring condos and townhouses. It puts strict limits on the number of loans it will insure in a single development and will not back a loan unless the majority of homeowners in the development use the property as their primary residence.

The bottom line is that attached housing now comes with higher fees attached too.

-- Carla Fried