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Brad comments today on the difficulties of financing a condo purchase.

In years past, whether a buyer wanted to purchase a single family home or a condo, the mortgage process was very similar. But today, especially in the Las Vegas area, things have changed.

When a lender considers whether to approve a mortgage on a condo, the lender will ascertain that the community in which the condo is located is on the FNMA approved list. A community will not make the approved list if too high of a percentage of units are non-owner occupied, or if too high of a percentage of units are delinquent with their periodic assessments. In either case, it would be considered too risky for the lender.

This was never much of a problem until the last few years. Now, the number of approved condo communities is smaller than the number of communities that have fallen off the list.

So, if a community in which a buyer wants to finance a unit is not approved, the buyer will not be able to get a new mortgage.

The result of this is that most condos in the Las Vegas area now need to be purchased with cash, except for those located in still-approved communities.

One of the ironies in all of this, in my opinion, is that most buyers who intend to occupy their units do not have enough cash; rather, it is investors who have enough cash and are buying up most of the condo units. This only further exacerbates the problem.

In the last couple of years, I have been saying in my training classes that smart real estate agents, when working with prospective condo buyers, need to think in reverse. In other words, traditionally, agents would show condo units to their buyers, then the buyers would apply for mortgages and hope that the communities qualified for financing. Now, I suggest that agents obtain a list of approved communities, then only show units there. Unless a buyer is willing and able to pay cash, it would be prudent to show approved condos only.

Various government web sites, such as HUD, have lists that they post on their web sites, but the lists can be outdated and inaccurate. Therefore, I recommend that agents turn to their preferred lenders in order to check the current list.

Date posted: November 10, 2010