Currently I'm in contract to purchase a condo in Manhattan. My bank is telling me that a "reserve study" is needed from the condo for the building to be approved for Fannie Mae guidelines. At least 10% of the budget must be set aside to provide replacement reserves for capital expenditures, deferred maintenance and replacement cost of major common elements. However, the condo collects special... [more]
Currently I'm in contract to purchase a condo in Manhattan. My bank is telling me that a "reserve study" is needed from the condo for the building to be approved for Fannie Mae guidelines. At least 10% of the budget must be set aside to provide replacement reserves for capital expenditures, deferred maintenance and replacement cost of major common elements. However, the condo collects special assessments to pay for these items when needed. This 10% reserve requirement is currently holding up the condo from being approved by my bank. If this is going to be the standard, I am having second thoughts about purchasing any condos because these Fannie Mae guidelines will make it that much tougher for a future purchaser to obtain financing to buy from me as well.
Can anyone offer any insight on this 10% reserve requirement and if a reserve study helped to take care of it?
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Response by rsd317
over 13 years ago
Posts: 4
Member since: Nov 2010
NYCJOHN,
The reserve study will not eliminate the reserve requirement all together. However it may reduce the percentage required. What is the building address? Feel free to email me at rsd31783@gmail.com with any additional questions.
-Randy
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Response by jim_hones10
over 13 years ago
Posts: 3413
Member since: Jan 2010
randy d'ambrosio?
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Response by wavedeva
over 13 years ago
Posts: 209
Member since: Jan 2006
Here are several articles discussing condo reserves:
NycJohn, most banks require the condo to be Fannie Mae compliant for financing. Having a 10% reserve line item is one of the requirements. And if the condo doesn't have a 10% line item for reserves in the budget then a reserve study can be used to supplement that. The reserve must show that what the condo currently has in reserves and/or plans to collect in reserves from year to year will be enough to funds future costs of major replacements/repairs. If you're looking to purchase in an older condo then it'll be pretty tough to get this one through. Most condo boards will say it is unnecessary to pay for a reserve study or increase their budget by adding the reserve line item in the budget. Developers for new condos are more open to this since they have units to sell and want to open up financing options. Whoever you go for financing, make sure they're experienced with financing condos. You can feel free to email me with any other questions. Sunny.hong@bankofamerica.com
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Response by Riversider
over 13 years ago
Posts: 13569
Member since: Apr 2009
Many condos won't agree to this. It's onerous and makes no sense to continuously add 10% reserves each year even if the money is not needed. There are banks who will lend, but this does make it harder to get a loan.
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NYCJOHN,
The reserve study will not eliminate the reserve requirement all together. However it may reduce the percentage required. What is the building address? Feel free to email me at rsd31783@gmail.com with any additional questions.
-Randy
randy d'ambrosio?
Here are several articles discussing condo reserves:
"Stricter Lending Guidelines for Condos", The New York Times
http://www.nytimes.com/2011/01/16/realestate/mortgages/16mort.html?_r=1&scp=3&sq=condominium+reserves&st=nyt
"Squeeze Play", The Cooperator
http://cooperator.com/articles/2114/1/Squeeze-Play-/Page1.html
"Reserve Funds", The Cooperator
http://cooperator.com/articles/1033/1/Reserve-Funds/Page1.html
NycJohn, most banks require the condo to be Fannie Mae compliant for financing. Having a 10% reserve line item is one of the requirements. And if the condo doesn't have a 10% line item for reserves in the budget then a reserve study can be used to supplement that. The reserve must show that what the condo currently has in reserves and/or plans to collect in reserves from year to year will be enough to funds future costs of major replacements/repairs. If you're looking to purchase in an older condo then it'll be pretty tough to get this one through. Most condo boards will say it is unnecessary to pay for a reserve study or increase their budget by adding the reserve line item in the budget. Developers for new condos are more open to this since they have units to sell and want to open up financing options. Whoever you go for financing, make sure they're experienced with financing condos. You can feel free to email me with any other questions. Sunny.hong@bankofamerica.com
Many condos won't agree to this. It's onerous and makes no sense to continuously add 10% reserves each year even if the money is not needed. There are banks who will lend, but this does make it harder to get a loan.