IF YOU ARE ON A STRATA COUNCIL – PLEASE READ! IF YOU CARE ABOUT THE FUTURE MARKETABILITY OF YOUR CONDOMINIUM APARTMENT OR TOWNHOME – PLEASE READ!
In my nearly 10 years as a mortgage broker, I have not only seen the tightening up of the big banks and credit unions, but also the mortgage insurers. Mortgage insurance is required if a buyer has less than 20% downpayment. Currently we have 3 mortgage insurers in Canada, CMHC, Genworth and Canada Guaranty. Once the buyer has made their offer, then and only then does the file go to the mortgage insurer for review. The bank’s approval is always contingent on the mortgage insurer’s approval in cases where a buyer has less than 20% downpayment. When it comes to all buyers the mortgage insurer can collapse an approval regardless as to how strong the borrower is, you could be Donald Trump and the mortgage insurer will still turn you down if they don’t like the property. When it comes to condos (apartments, townhouses – stratified properties) the mortgage insurers can be especially tough. For the past few years I have encountered an alarming trend among the mortgage insurers. I have seen buildings that are relatively new or older buildings being declined for a multiple of reasons including:
- Litigation against the developer or the strata corporation – mortgage insurers need to know why and if the reasons cannot be PROVEN this can be problematic no matter how trivial the litigation may be.
- Units re-selling for LESS than what the new units are selling for (assuming some are still for sale)
- Age restrictions of any sort – these are the kiss of death and I strongly advise against any strata implementing any age restrictions
- Condo assessments – if a strata has NOT voted for the FULL FIX as presented in the engineering report than mortgage insurers are shying away fearing that their insured buyer may not be able to afford the upcoming special levy as the strata corporation did NOT vote for the full fix, they say the full fix is just a matter of time and a new special levy will be imposed.
- Contingency reserve funds – insurers consider this to be important and if the contingency reserve fund is too low in relation to the age of the building, number of units etc…this in itself can result in a decline.
- Depreciation reports – we are just beginning to see the misery caused by these reports.
- Too many current owners in arrears – unbelievable as this may sound, I have had this come up as an issue more than once. The properties had too high of a percentage of current owners in arrears on their strata payments, this caused the insurers to not want to have exposure in the building fearing future marketability concerns.
- Pending assessments for rainscreening or other major repairs
I’m writing this blog as I see this as a disturbing new problem that I hope to help improve or eliminate. If you are on a strata council, please remember that your decisions and the decisions of the owners will affect the future marketability of your property. If your building is uninsurable in the eyes of the mortgage lenders, this will severely affect your re-sale value! The majority of condo buyers have to get mortgage lender approval only once they’ve made an offer on your home. If you’re restricted in your buyers requiring 20% downpayment (or more some banks and credit unions require 25-30% now to waive mortgage insurance requirements) than you will be putting yourself and your building in a very difficult re-selling situation.
City Wide Mortgage Service