Panama City Beach Real Estate Market Conditions
Panama City Beach Real Estate Information | Market Conditions | Boating and Fishing

Current Lending Climate In Panama City Beach For The Purchase Of Condos And Condo Hotel Units

I have been told by a number of local lenders that many of the high rise condos in Panama City Beach are being classified as Condo Hotels or non warrantable condos. We have seen this classification most recently in an older complex named Horizon South and it is not on the Gulf of Mexico. From a financing perspective, a Condo Hotel will require a larger down payment than the more traditional warrantable condominiums.

In my opinion this could slow condo sales for near term. Condo buyers and owners who are considering selling will want to be aware of the classification Condo Hotel and how it may affect their decisions to buy or sell.

Why? The pool of lenders that will finance condo units classified as Condo Hotel is more limited.

Why? I am told Condo Hotel paper is not eligible for sale to the secondary market. Therefore the lender must hold the paper/mortgages in their own portfolio. The number of lenders willing and financially capable of doing this in not a large number. Lenders consider Condo Hotels to be a more risky investment. To compensate for the risk, loan interest rates are higher, frequently variable and loan term lengths can be shortened to 15 years.

The criteria used to classify a Condo as Condo Hotel is a pretty gray area and seems to vary from lender to lender. However, it can include but is not limited to:

-is there an on-site check in desk?
-can units being rented nightly
-owner occupancy - for example, no less than 60% of the units in the complex

Many Condo Hotel loans require fully documented income with 20-30% down payments with no secondary financing permitted. It does not help that as I told recently by a local lender, Panama City Beach is on a Lender’s Declining Markets List. What affect does that have? It can take many lending options off the table, it does not eliminate the ability to get a mortgage, they just have larger down payments and stiffer terms. You can understand why a lender would have reservations on loaning money when property prices and values are on the decline.

Underwriting changes by large investors Fannie Mae and Freddie Mac, plus new restrictions by private mortgage insurers, getting a loan on a condo unit, or even refinancing one you own, could prove tougher than you know.

Its been communicated to me that beginning May 1, AIG United Guaranty, a major private mortgage insurer, no longer will write coverage on condos in many zip codes across the country that it designates as having “declining” market conditions. In the healthiest real estate markets, United Guaranty will require buyers to put at least a 10 percent down payment, and they will reject applications on units in condo projects where more than 30 percent of the owners are investors. That means at least 70 percent of the buildings occupants must have the condo units as their primary residence. Its not clear to me whether or not in the eyes of AIG a “second home/vacation home” would qualify as non investment property.

Fannie Mae, a major financing source for condo projects, has implemented new procedures that many lenders and mortgage brokers say could reduce the availability of loans to condo purchasers in the near term/long term. Freddie Mac has issued similar new guidelines.

Under Fannie Mae’s changes, most of the due-diligence research on condo projects’ key characteristics such as their legal documentation, the adequacy of condo association operating budgets, percentage of unit owners who are late on association-fee payments, percentage of space allocated to commercial use and percentage of units owned by investors, must now be performed up front by loan officers. As you can imagine loan officers just love that!

New Fannie guidance requires loan officers to make certain that at least 10 percent of a condominium project’s current operating budget is reserved for capital expenditures and deferred maintenance. There is no leeway in the guidance for compensating factors, such as when part of the line-item reserves are for important but nonphysical expenditures such as insurance.

What does this mean for condo buyers? You must be patient and plan ahead. When you inquire about whether or not you can get financing on a condo unit you won’t get a definite answer immediately because, it takes time and research for the loan officer to determine how the building qualifies.

After publishing this post one prospective buyer asked us, “Should we buy now or wait and ride this out?” We think that it isn’t so much a question of waiting. How long would you wait and under what conditions or criteria would you decide to buy? When to buy seems to be more a question of what are your long term and short term needs? What is your investment horizon? What kind of loan terms can you get? Is the target condo priced right? If you find a condo complex you like and you find a condo unit you want… and the price is right, why not contact a lender? We WILL help you! Contacting lenders is the only way to find out if you can get a loan on the unit in the building or complex that you like. Find out what the financing terms are. If you can get suitable financing buying now and holding for the long term could be a good decision.

What does this mean for condo sellers? Selling your condo unit, at least for the near term, will require that buyers who need financing be more quaified than the recent past. Larger down payments are a key criteria.

Please let us know if you have any questions or concerns.

Kind regards, Mike and Vivian Foate- By Land or By Sea!
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MIKE’S CELL: 850-596-4236
VIVIAN’S CELL: 850-814-2372
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Mike and Vivian Foate-REALTORS®
Prudential Shimmering Sands Realty, Inc.
400 S. Hwy 79
Panama City Beach, FL 32413

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