Many single-family residences are situated in a complex shared with other residences. The four most common include the following:
Strictly speaking, residents in a cooperative do not own their units. Instead they own shares in the cooperative, which then assess the individuals based on the specific unit they occupy. Obtaining mortgage financing for cooperatives is often difficult, with most co-op buyers having to search for banks who specialize in co-op mortgages.
The individual unit dwellers of a cooperative do not own any property. The entire cooperative is owned by a corporation and not by individual owners. The shareholders of the cooperative gain the right to particular units and to use common areas. The unit dweller thus leases the unit from the corporation; and it is the cooperative that owns all of the units.
Because the cooperative is a single corporation, it is taxed as one corporate entity. Since the units are not individually owned, the entire co-op project is financed with a blanket mortgage. Individual mortgage loans will finance a portion of the entire blanket loan for each of the shareholders.
A final element of the cooperative project is that prospective unit owners must be approved by the current stockholders. In this way, the cooperative project can act as an exclusive club or organization. Cooperative projects present a higher degree of risk for lenders. The most influential risk factor is that if one unit owner (mortgagor) defaults on his or her loan, the entire cooperative project can be foreclosed.
For more information, see the "Cooperatives" article.
Condominium units are individually owned; each owner is then a member of the homeowners association which owns and maintains the common area. Unbeknownst to many, however, most condo owners only own the air space within their units.
Mortgage loans for condominiums are processed the same as for regular single-family homes, except that additional documents and restrictions are required. For example, the homeowners association or condo manager must complete a lengthy questionnaire about the complex.
Most conforming lenders require condominium projects to meet Fannie Mae and Freddie Mac requirements. Analyze the appraisal, title, owner's policy or master deed, condo by-laws and condominium certification letter for information about these criteria.
Fannie Mae and Freddie Mac also offer limited review condo programs (at lower LTVs) for condominium properties that may not meet all of their Class I or Type A requirements.
For more information, see the "Condominiums" article in the "Real Estate In-Depth" section.
Townhouses are similar to condominiums in most respect. They are also processed in a similar fashion.
The primary difference is that many townhouse owners also own the land on which the townhouse is built. They also own the walls, although they must share the party walls adjacent to the neighboring townhouse. For more information, see the "PUDs and Townhouses" article.
PUDs are looser associations normally consisting of houses and residences that are part of a development or neighborhood. These neighbors are legally part of this PUD, which pools funds to maintain common areas and responsibilities, such as mowing greenways and snow-plowing roads.
There are few additional requirements for PUDs. The key tasks involve verification of PUD assessments and restrictions. For more information, see the "PUDs and Townhouses" article.
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