Condominiums can be a great low cost, low maintenance solution when you are choosing where to live. Unfortunately, receiving financing for a condo can be more challenging than receiving a conventional loan on a traditional home.
What You Need to Qualify
Loan qualifications for a condo loan are often more stringent and there are a few things to consider when applying for a condo loan:
- You may need a larger down payment to get the best mortgage rate for your condo.
- The homeowners association for the condo complex may have additional financial qualifications before you can buy a unit in their complex.
- Lenders look at not only your financial standing, but also the financial standing of the developers. Different loan programs have different requirements for the condo developers.
- The condominium complex must hold a certain amount of HOA fees in reserve to satisfy most lenders.
Often condo loans are harder to secure because not all the requirements apply to you, the home buyer. If the developers are financially irresponsible or noncompliant, many lenders won’t give out a loan. When looking at condos make sure that you can trust the developers of the complex you are looking to move into.
Warrantable vs. Non-warrantable Condos
Condo loans are either classified as “warrantable” or “non-warrantable”. Non-warrantable condos are considered risky and can be challenging to finance. Often you’ll need to procure a loan from a specialty lender. Condotels, timeshares, and complexes that require buyers to join an ownership club (like a golf club), are most often considered non-warrantable.
Warrantable condo loans are determined to be more stable by Fannie Mae or Freddie Mac, government-sponsored agencies that determine guidelines for buying homes. Here are some typical requirements for a condo to be considered warrantable:
- No single person or entity owns more than 10% of the development, including the developer.
- Over half of the units must be occupied by owners.
- There is less than 25% commercial space set aside in the development.
- The homeowners association has never been litigated against.
Warrantable condos are much easier to obtain loans for because they are considered stable by lenders. Make sure you take extra time to find warrantable condos when looking for a new home.
Don’t Forget About the Homeowners Association
One thing home buyers often forget about when they look to buy a condo is the added cost of the homeowners’ association fees. These fees are often monthly and should be included when considering what you can afford.
Homeowners association (HOA) fees often provide certain services that offset some of the cost and provide convenience to the homeowner, such as:
- Lawn Care. This means that you don’t have to mow the lawn or trim the bushes.
- Pest Control. Many HOAs schedule inspection and treatment from a pest control company to avoid pest infestations.
- Exterior Maintenance. Roof and siding repairs that may come up are often covered, potentially saving you money on what would be a costly repair.
Combined with a higher down payment, condos can require a lot of upfront work for the home buyer. Make sure that you can afford both the HOA fees and your mortgage before you apply for a mortgage loan for a condo.
We Are Here to Help
You don’t have to figure out how to obtain a condo mortgage loan alone. At Chris Doering Mortgage, we have years of experience in all types of loans and we can help you. Call us or come by the office and we will help you through the entire process.