Fannie Mae and Freddie Mac now have stricter guidelines for mortgages made to condominium buyers. The changes could leave some would-be condo owners without affordable financing.

In the '80s, Bon Jovi hit the charts singing, "Your love is like bad medicine." Today's big issue isn't love, however, it's loans. And with the recent changes to how the Federal government will support condo loans, don't be surprised if a lender tells you that your condo is like bad medicine.

Government-run mortgage companies Fannie Mae and Freddie Mac have overhauled their requirements for condo and multi-family home mortgages. The changes have an impact on prospective condo buyers, because loans that can't be purchased or guaranteed by Fannie or Freddie are both harder to get and more expensive.

Condo operations under the microscope

Fannie and Freddie's new condo financing policy requires the evaluation of the condo association and operations. This scrutiny is in addition to the usual evaluation of the borrower's credit qualifications. More specifically, the government agencies now have certain requirements pertaining to the condo association's insurance, financial statements, status of dues receivable from residents, and even the ownership breakdown of the units in the complex. Situations that could cause problems for prospective condo mortgages include:

• A large percentage of residents are past-due on their association fees
• The multi-family complex has hotel units, in addition to resident-owned units
• The multi-family complex has too much space designated for commercial purposes
• One owner owns more than 10 percent of the units in the building
• The condo association has insufficient cash reserves
• The condo association has insufficient insurance coverage
• The condo association has not budgeted for its insurance deductible

Pay more without Fannie and Freddie

The new policy makes it more important than ever for borrowers to work with experienced real estate and mortgage professionals. If a particular building has an issue with its commercial space, for example, borrowers are entitled to know before they fall in love with the place. The responsibility falls to real estate agents to pre-qualify buildings so that buyers won't get caught with an ugly surprise when it's time to get financing.

The good news is that condo buyers can still get mortgages, even if the deal doesn't fall within Fannie's or Freddie's guidelines. The bad news is that those mortgages will be more expensive.

Private mortgage insurance harder to get

Also complicating things for condo buyers is a new pickiness on the part of private mortgage insurers. Private mortgage insurance, or PMI, is typically required by the lender when the borrower's down payment is less than 20 percent. Some insurers have dropped their coverage on condo mortgages entirely, while others are getting increasingly restrictive about the mortgages they'll accept.

In situations where the deal doesn't qualify for PMI and it doesn't meet Fannie's or Freddie's guidelines, the lender may treat the loan like bad medicine. The required remedy is usually a hefty cash down payment-sometimes as much as 40 percent.