Condos used to be the easiest way to get on the property ladder. That step just got a lot steeper. Between a sudden jump in borrowing costs and a massive federal rewrite of how lenders vet buildings, buying or selling an attached home just got much harder.
The end of the easy condo loan
For years, a huge chunk of condo purchases breezed through underwriting. Lenders cared about your credit score, but they rarely dug into the financial health of the building itself. That ended this week.
The Federal Housing Finance Agency eliminated its limited review process. According to Realtor.com, this fast-track option previously covered up to 40% of loans.
The tragic condo collapse in Surfside, FL, which killed 98 people, sparked the crackdown. Going forward, every condo bought with a conventional loan faces a rigorous audit of the association's budget and deferred maintenance. Starting in January, associations must funnel a much larger chunk of their annual assessment income straight into reserves for future repairs.
If you're trying to sell a unit in a building with a depleted reserve fund or a history of structural litigation, your buyer might simply get denied. Lenders won't risk financing a unit in a building that can't afford to fix its own roof. HOA foreclosures spiked nearly 40% in two years. Banks want proof that communities are financially sound before they hand over a check.
A split housing market
This hurdle arrives just as borrowing costs take another frustrating upward turn. The average rate on standard fixed home loans climbed to its highest level in over a year this week, erasing the brief relief buyers felt in late winter. Global tensions in the Strait of Hormuz are spooking energy markets, keeping inflation fears alive and pushing rates back toward the highs we saw before the spring dip.
The result is a housing market split right down the middle. High prices and stubborn rates are freezing out entry-level buyers. Sales of starter homes fell 5.4% in May, CNBC reports, even though there was actually more inventory available than a year earlier. First-time buyers are simply doing the math and deciding to wait.
At the top end of the market, it's a completely different story. Wealthier buyers are largely ignoring rate fluctuations. Luxury home sales actually rose in May compared to the previous year. If you have cash, the market is moving smoothly. But if you're relying on a mortgage to buy your first place, you're facing serious headwinds.
The bottom line
- If you own a condo, get involved with your board now. You need to know if your building meets the new federal reserve requirements before you decide to sell. Our Neighbors & HOAs guide can help you decode the association budget.
- First-time buyers looking at attached homes should prepare for a longer closing timeline. Lenders want to see a lot of building documents, so factor those delays into your plans when buying a home.
- With rates looking higher for longer, don't hold your breath for a sudden drop. If the monthly payment on a new place feels too tight today, it's perfectly fine to stay put and build savings instead.