 This is Think Tech Hawaii, Community Matters here. Aloha, and welcome to the Condo Insider, a program all about condo living, condo owning. And today, we're going to talk about condo purchasing, which is an important aspect of owning in a condominium. You have to buy it first. And I'm really pleased to introduce our guest today, somebody who I've known for close to 14 or 15 years. And that's Leonard Loventhal. He's a loan officer with Honolulu Home Loans, and I'd like to welcome you, Leonard. Thank you, Skye. It's nice to be here. Well, it's nice to see that we both still are not gray-haired yet, but Grecian formula works wonders. I was really excited about inviting you on the program today because we've talked a lot of things over the last couple of years on what it is to own a condo, what it is to deal with boards and the documentation and all that. But then it dawned on me we haven't really talked about what it takes to purchase a condominium. And that's a little bit different than when you're buying a single-family home. So first off, just your opinion, we both have an opinion on this, is do you think that due to the increases of prices, which I believe now the average price of a single-family home on Oahu is over 750,000, that more first-time home buyers are moving towards the condo purchase rather than the single-family purchase? Yes. Because of the entry-level single-family home price is up there as well. The condominium becomes obviously another option for them to at least get something by a piece of the rock. So definitely condo purchasing is still very popular, especially for entry-level starters. Well, and that's very important to understand because especially for a first-time home buyer buying into a condominium there's a lot of concepts in condominium living that don't really apply to single-family living that may be a bit of a surprise to a buyer when they first get in, understanding house rules and the bylaws and all that. But what we're here to talk about today is purchasing a condominium and there's a lot, personally I think there's a lot more paperwork when it comes to buying a condominium than a single-family home. I think for today's session, which is only 30 minutes, it's impossible to cover. This could be an all-day class on how to make sure you're positioned properly to buy a condo. I think today, between our discussion, we're going to go over some of the key elements on the lending side that need to be in place for a loan to get to the closing table. Right off the bat, is it different financing a condo than it is financing a home? It's absolutely different. There are different guidelines, different rules and different, I guess, gotchas that can easily happen on a condo versus a single-family dwelling. It depends where you want to start on that. Well, let's just start off with, is there a difference in financing like down payment and things like that to qualify to buy a condo? The biggest difference on the down payment would be on an owner-occupant purchase, which are most entry-level buyers, obviously they're buying their first place, they're going to live in it. For them, condo down payments can be as little as 3%, 3 to 5%, which is good. For an investor, your down payment has to be in the range of 20 to 25%. That's been that way for a while now, so that's the first big difference. The second major difference is, if you're an investor buying a condo, the occupancy has to be 51%, or over 50. That used to be a big deal for owner-occupants, but now it's basically a big deal for investors. Big difference there, owner-occupant versus investor condo. So the owner-occupancy requirement is not as strong for owner-occupant. Okay, well, that's a little bit of a change over the years. It used to be when we had our meltdown basically in 2008, all condo lending got locked down, so everybody had to achieve that 51% owner-occupancy ratio, which is not always easy to reach in a lot of areas and a lot of condos. That was for everybody, but it's been a few years now, so it's only for investors. Well, one of the topics that has been bouncing around for the last couple years in the condo world and even at the real estate commission level is the lack of amount of condos that are, let's say, FHA approved. That's a whole other minor discussion, but for the most part, most are not. Basically, FHA was tied to VA, then I believe VA is revamping their entire approval process, so for FHA and to some degree VA, condo purchasing is challenging. Well, I would imagine, although we do know, both of you and I know there are developers out there that when they do the townhouse-style type of condominium, so to speak, they always go the route of getting FHA and VA approved because that opens up more of the market for them. But as far as the new condominiums that high-rises, most of those condominiums have not gone that route. It's basically conventional financing. But even the conventional financing you can get in with the lower down payment? You can, as an owner-occupant. Yeah, as an owner-occupant. So I would imagine there's a different variation in regards to paperwork for a condo as well. It's a typical loan, let's say, for an owner-occupant. What is it that you want to see? I don't know if it's paperwork per se, but there's much more due diligence that needs to be done. Starting with, like you mentioned here in some of the notes here, the RR105, that if that's gotten at the beginning versus two weeks into it could make a big difference. Well, yeah, let's talk about that right now because this is a document that was created by the Hawaii Association of Realtors about 20 years ago. And it's gotten different variations over the years as things change. And a lot of times it's my understanding from way back 20 years ago that the idea behind it as this was a form for the banks, that it detailed information like the owner-occupancy, any litigation, does any one entity own more than 10% of the units in the building. And over the years I think what has happened is buyers and realtors as well have started using that form as like a short-form disclosure. And a lot of people will read that form but then not read the declarations or bylaws, they just look at that form. And I think that's not really what the proper use of it was. Is it, in your opinion, still used strongly as a bank type of form? I would think so. Again, if you have lending going on, this form becomes the first major checkpoint. So to not, and sometimes it's not available for whatever reason, depending on the management association that's managing the condo, some are great, some are slower, it depends. So to not have that at the beginning to vet the condo itself for your client for us can be an issue. So yes, we definitely, the earlier I can get that, the better off we'll be. So let's just discuss real briefly a couple of the questions that are on that particular form. One is they want to know if vacation rentals are allowed in the building. Right, because that can be an immediate gotcha. If there's any concentration of property, take you out of conforming lending, conventional saleable, Fannie Freddie. And then you're probably into more of a portfolio or using a local bank's portfolio to do their loan. Well, I actually saw that at a condominium where the developers still own like a good 60, 70% of the units. That's the second one. And there was one bank that would loan, but they were portfolioed loans like you said and they would only do three in the building a year, which really cut out the availability to people. Right. You know, the other thing that always caught me too was they want to also know is are more than 10% of the owners delinquent in their HOA fees. So that rule is another gotcha. Anything above 10, it may or may not critter you, but anything above 10, double digits, you've got to put up a big red flag and you've got to do more work. Anything above 15, you're probably done. And as you and I were talking and you just mentioned too about the meltdown, which was what, about 2008? After that we saw a tremendous amount of condo associations that well exceeded the 10% delinquency. So it was probably a hard time getting the loan for a condo. You even saw states back in the East Coast, like in Florida, where I don't think you can get a condo loan for a while. That's the extreme. So that was the height of it. And we can still do it here, but these notes become very important. These checkpoints here, including occupancy, that's still important, especially for an investor. That's a big deal. For owner occupants, not as much. I check all of those. Litigation is another pretty big one, because litigation is subjective. It's very gray. That's where one lender might say they don't like it. Some lenders may just see the word litigation and just be done, whereas some might say, let's look at what is the actual litigation. Maybe it's just something between a worker on the condo grounds against the association, which has nothing to do with the actual structure. So the other side of that litigation issue is, is it being covered by the master policy or is this something that is going to cause a massive special assessment to everybody? So I've seen main lenders who are just pretty far away not dig a little deeper to find out what it is. And they just see the checkbox, and they say this condo is not acceptable to us. Whereas we've done some here where it's not as major, it's not structural, the main thing. So the other issue that comes up, and again I think it was a result of the mortgage meltdown that we saw back in 2007, is they also want to know does the homeowners association actually own more than 10% of the units? And the reason they may is because they took them back in foreclosure. Back in foreclosure, and then you've got to watch out for smaller condos with smaller number of units, under 20, under 10, under 5, the rules change as you go down in size, it can be very challenging if the lender doesn't do their homework, they could get stuck. And if there's no association, that could be a problem too. So with condos, that can all be thrown into the mix. Well, just as an example, I can remember after the mortgage meltdown I managed a building that was only 45 units, and within a year, 14 of them were in foreclosure, more than half were delinquent on their maintenance fees, and they were leasehold for renegotiation that year. There's a perfect storm for that association trying to get financing. Trying to get financing. You might still be able to get it, but if you put 50% down, you take a portfolio loan, it's still possible, but you're not going to get Fannie Mae. Well, I think that's a good point that you made, it might still be possible, but your down payment might be much higher than the requirement. But the moral of that story is as a realtor and as a client who wants to buy, always ask. Well, since I brought it up and it's not in our notes, I would like to point out, too, that if it is a leasehold condominium and there's only 20 years left on the lease, what is the lender going to do? 15-year loan. Yeah, pretty much. Which actually I like 15-year loans, too. Every time you make a payment, you can actually see it coming down. You can see the principal actually move. Along those lines, there are a lot of condos now that are leaseholding on Oahu, especially, that are getting short. And we've aged with that whole topic, and now it's common. And I think, and it was predominantly with the mainland lenders, who actually didn't understand this. In my own building that I used to live in on Maui years ago, it was a leasehold condo, and it only had, I think, 18 years left on the lease. And there were people in there getting 30-year mortgages. So I don't think somebody was checking when they did the whole lending on it. Possibly not. We've seen everything over the years. That's possible. Let's just say, for an example, that they can't get the RR-105C. Do you have your own form that you can provide? Not really. At some point, if you want to do a saleable loan, you need that form. Sometimes they ask us for that, and I say, no. So you need to, and if there's no association, that's a whole different thing. I think what it's important to remember and could be frustrating for you as well. One of the buyer is that there is no legal mandate, nothing in statute that says anybody has to fill out that particular form. So that's part of where it gets a little... That's kind of rare. I don't see every loan obviously that goes on in Honolulu, but it's kind of rare from my experience. Okay, well, let's take a one-minute break, and when we come back, we'll continue on with discussion about how you finance the condominium. This is Think Tech Hawaii, raising public awareness. Hello. I'm Helen Dora Hayden, the host of Voice of the Veteran, seen here live every Thursday afternoon at 1 p.m. on Think Tech Hawaii. As a fellow veteran and veterans advocate with over 23 years' experience serving veterans, active duty, and family members, I hope to educate everyone on benefits and accessibility services by inviting professionals in the field to appear on the show. In addition, I hope to plan on inviting guest veterans to talk about their concerns and possibly offer solutions. As we navigate and work together through issues, we can all benefit. Please join me every Thursday at 1 p.m. for the Voice of the Veteran. Aloha. Aloha. Welcome to Hawaii. This is Prince Dykes, your host of The Prince of Investing, coming to you guys each and every Tuesday at 11 a.m. right here on Think Tech Hawaii. Don't forget to come by and check out some of the great information on stocks, investings, your money, all the other great stuff, and I'll be your host. See you Tuesday. And welcome back to The Condo Insider. We were having a discussion with our guest Leonard Laventhal from Honolulu Home Loans about the issues of financing a condominium in the state of Hawaii. And I had mentioned to you during our short little break there that I really like that you brought up that there's gotchas when you're in the process of doing this, that a typical buyer, particularly a first-time home buyer, might not be aware of when they're buying a condominium. So in your opinion, what are the most common gotchas? So as we talked a little bit about in the first half, when you're purchasing a condo, especially with a minimum down payment, with a first-time home buyer, they have no idea what to look for. Much different than a single-family home. The condominium has condominium documents. It has, I guess, specs. It has metrics. It has things that you need to figure out much more than a single-family home. Single-family home, you're basically looking to see what condition it's in. Yeah. You're done. The condominium, you're looking for, we talked about it, owner occupancy. You start with that. You look at delinquency on HOA dues, which is still, can be commonly in the 10% to 15% range. You're looking at, we didn't talk about this. We're looking at, of course, the number of commercial space, square footage of commercial space in the condominium itself. Because if that becomes too much of a percentage versus the entire space in the building itself, that can be a gotcha. And a gotcha just means you're not going to get best terms, best pricing, best rates. You're going to be, if you get anything, it's going to be a portfolio. The other thing about being a portfolio loan is your down payment might go from 3% to 20 in a snap. And that could easily derail your transaction, especially for a first-time buyer, who can't go from 3% to 20. So these gotchas are things that need to be done obviously up front. And the due diligence here, including litigation, because we have a lot of condominiums in especially in Honolulu that have various forms of litigation. So if you add all of these things together, that's a lot of due diligence that needs to be done. And as I think of these things, we haven't talked about reserves. Now, condominium reserves, there are different requirements. You're probably more familiar with them than I am, being more of an insider on the condo itself. For lenders, that can be gray too. Some lenders may be focused on it completely and may require their own overlays or requirements on what reserves are needed in that association. Others may not be as keyed in on that. That's kind of gray, not as much as some of the other things that are actually measurable. So that's another one that comes up from time to time. Well, the other issue too, and I've had this pop up as a gotcha a few times, is the master policy itself for the association as a whole. That's another one we haven't talked about yet, the insurance. Now you've got insurance for the master, you've got insurance for the actual loan itself, and you may need flood. Even in a 30th floor of a condo that is based in a flood zone, you need flood insurance. And if the building doesn't have it, guess what? You need to put it on your loan. And that's hard to explain to a first-time buyer why you're up there. Yeah, you're way up there and you've got to have a flood policy. You've got to have a flood policy. So that's just another element to the entire discussion today. And surprisingly enough, when a buyer is thinking about buying in a condominium, and it doesn't matter if it's a first-time home buyer, or it's somebody where all the kids have gone off to college and they quickly got to sell the house and buy a one-bedroom condo so the kids can't move back home, one of the things they don't factor in either is the maintenance fees. That has a big effect for qualifying for the condo as well. So for qualifying, and one other thing we should mention now is that a lot of times individuals will buy a condo because they want to stay in downtown Honolulu versus they could buy a single family home, but it'll be more rural. But yes, you've got that condo fee, the maintenance fee that could easily translate to buying a single family home with a much higher loan amount for that $300 or $400 that you need to pay for the condo. So you're correct, that's another qualifying issue. And that could easily translate to $100,000 or $125,000 of house in the rural area. That's an aspect I hadn't actually looked at before is how that could affect the amount of the purchase. And we're actually looking at common maintenance fees being in the 4 and 500 range now. It's not high or depending on where you are. We start at 4 to 500, and when we're doing the pre-approval, our realtor says, what can they buy and it's a condo? It can vary. If the maintenance fee goes from 400 to 200, that's $100,000 or more of difference in purchase price. So it can make a huge impact on your pre-approval and your actual purchase. It's a big deal. So before the market really took off again, there were a couple buildings here in downtown that went up. And of course, when they're brand new projects, state law requires that 50% of them must be offered to owner occupants first for the first 30 days that they're offered. And I saw a couple condos here where they were just lining up down the street. And in one interview where they were interviewing the people standing in line, the number one reason they were wanting to buy into this condo was so that they could walk to work. So obviously they lived downtown. They wanted to be able to avoid all the traffic and things like that. And then we just saw in the news last night that there is another project over on the west side that is selling out very quickly. Single family homes. So there is obviously a pent-up demand. But again, the price point is what's going to turn people to what direction they want to go in. Well, an affordable or a reserve unit in town now is 400,000 to 500,000. So that's a reserve unit. That's what we're fortunate about in Hawaii, however, is at least it usually comes with a parking space. I mean, on the mainland, they sell you parking spaces that are more expensive than some of our condos here. One of the thoughts along today's discussion is that when you're buying a new tower or a new building in, say, Kakaako, some of these issues are not going to be there. A lot of them are not going to be there. Because they're brand new. They're brand new. So you do get away from those things, but you have to wait a couple of years and you've got to stay qualified for a couple of years. And they don't realize that. You put your deposit, it's kind of there and you're done. And you've got to stay qualified for two years because you're not going to forgive you if something happens and you go buy a fancy car and you don't qualify. That doesn't get you a deposit. I was just going to bring that up. In my 35 years, it never ceased to amaze me that once they buy a new condo, they're even not done with the financing process. They run out and get a new car to go with the new condo. Or furniture. Or furniture. So anything along those lines, as part of today's discussion, is you've got to stay qualified. Even when you're not done yet, you stay qualified. So you've been around for quite a while. And I don't say senior citizen anymore. I say seasoned citizen. Ever since I got my AARP card. And so in your insight into the community, what are some of the trends that you think you're seeing? Right now, we saw a huge absorption of condo buyers in right in Kakaako, Humongous, thousands of units. And that is, you know, that's great because now you've got a whole bunch of new homeowners. The price points are high. The trends are still there's not enough entry level condominiums that are truly affordable for everybody. And that would be maybe in a two, 300,000 range. That's very limited. So we don't have that going on yet. But we filled a lot of the void with some of these other high rises. And there's still demand for living out in the west side at the lower price point. Yeah, lower price point. And it's still a seller's market right now. A big seller's market. So the buyers need to work a little harder. They need to get better prepared to get into a condo or they're home and just got to work harder. It's a seller's market. Well, and it's interesting that last night they pointed out on the news that if somebody bought a home just a few years ago they're already looking at approximately 150,000 in equity. Possibly. And so what's happening is they're taking that equity out and buying condos as an investment. So that's also probably what's spurring the increase in the condo pricing as well. But it's an interesting point you brought up about the increase of building in Cacaaco. And I sort of have to laugh to myself when I see that initial add for the owner occupant. And the price point starts at $1.2 million. That I don't think they're lining up around the block for that particular. Not quite there, but even at the five to $600,000 range they're still a lot of buyers. Yeah. And they're getting there. They're easily making their quotas right now. Well, at least we haven't become like San Francisco where their ads actually say starting in the low millions. We're not there yet. Not yet. Not yet, but we're continuing to see the rise and it's just a constant increase and get in. I still say when you can qualify, give it some serious consideration. It's going to go up. So let's say I'm a first time home buyer. I'm looking at a condo because of the price points. What should I prepare for to come see a lender? Well, you definitely want to have a strong realtor, especially in a condo market because they need to help you gather the information on that condo to come in with. You come in prepared with at least not a R105, but at least the basic information that you can actually get from the seller, maybe the association. If you do your homework and push a little bit, you can find out if there's a litigation. You can find out what the occupancy is. You can see if there's commercial space in there. You can ask a few more questions. All of this is easily done at no cost to the home buyer. The lender works with you, the realtor. But if you're just doing things on the fly, you could easily run into the gotchas, and then you're just spinning wheels, or you're falling apart after a few weeks, which is just a waste of everybody's time. And disappointing to the buyer as well. And emotionally disappointing. And you had pointed out something that I had even forgotten about, and that was the commercial aspects that are going on in the building, because Honolulu in particular has a tremendous amount of condos where the first three floors, let's say, are commercial units, and then everything above that is residential. How does that commercial really affect the rest of the building? So basically, that's a number as 25%. If it exceeds that percentage of space in the overall project, you're considered non-sailable to your portfolio. Your down payment went from 3% to 20 in a minute. So that can be, and that can change as the commercial space evolves, but that can come up more so in the existing condos. Yes. In Waikiki, near Alamoana, they got all different types of older condos with a lot of commercial activity. Well, I'm wondering if the other aspect behind that for the lender is the fact that, and I know in a couple of them, that the developer still owns the commercial, and they're usually the ones who are delinquent on the maintenance fees, not the residential. Not as much now, but yes, that can happen. And I guess in the time we have left, we didn't touch on mixed use. We have a lot of mixed use properties on, especially on the Waikiki, condominium hotels, they act like hotels. So they're act like condos, but they still come from the hotel basic startup. And those can be another form of, I guess for us, that's another trick question because you've got to do the homework, figure out does it have a full kitchen? Does it have parking? If it doesn't have parking, that could affect your loan itself too. So not all come with parking. And it could be a hotel unit or a studio. So that's yet another, like I said, a curve for us when someone says I'm buying a condo, especially the Waikiki, I'm like, whoa. Yeah, you got to look twice. You got to look twice or three times. Well, again, it's amazing how fast 30 minutes go. We could, like you said, have a whole day discussion on this. You could teach a whole class on this. So I'd like to again thank our guest, Leonard Leventhal, who's a loan officer at Honolulu Home Loans has been doing this a number of years, at least all the years that I've known you. So he knows what he's doing. And I again want to thank you for joining us here on The Condo Insider to give us an aspect of how to buy in a condominium. And we might have you back again to talk more about the Waikiki ones with the mixed usage. That's a whole different discussion anytime. Thank you again. And thank you again for watching The Condo Insider. We're on every Thursday at three o'clock. So be sure to join us next week for more information about what it means to be in a condominium. Aloha and thank you.