Condos tend to be less costly and require less maintenance than single-family homes, making them an appealing option for new homebuyers or those downsizing.
Finding a condo mortgage may be more complex than applying for a traditional loan. Lenders will scrutinize both your financial health as well as that of the condominium association during their underwriting process.
Financing
Condo financing options are similar to those for buying traditional single-family homes. You have access to conventional mortgages that meet Fannie Mae or Freddie Mac standards as well as government loans such as FHA loan programs for first-time buyers or USDA loans for rural areas.
However, lenders scrutinize condominium properties closely before offering loans on them to ensure they fulfill all their criteria and meet lender approval. This involves inspecting occupancy levels, structural integrity and financial health as well as reviewing documents such as association budgets, insurance coverage and reserve accounts.
Alternative Mortgage Solutions may provide non-agency mortgages from private lenders who don’t sell them to Fannie Mae and Freddie Mac, usually offering less restrictive conditions but often requiring larger down payments with higher interest rates reflected by this private lender. Whether you need a second mortgage or a new construction loan, their higher rates reflect the extra risk in taking on your loan but offer more flexibility.
Down Payment
Condos tend to be more cost-effective than single-family homes and provide the convenience of living in a popular neighborhood, plus access to community amenities like gyms or rooftop lounges. Condos do, however, require different mortgage requirements than traditional houses.
As part of the underwriting process, lenders review both your finances and those of the condo association itself to make sure both are financially sound to reduce any chance of defaulting on mortgage payments.
Financial strain can necessitate higher down payment requirements during economic downturns, and lenders typically require buyers with a 20% or less down payment to purchase private mortgage insurance (PMI).
As there are only a handful of lenders who provide non-warrantable condo loans, those offering these types of loans tend to charge higher interest rates than lenders that sell through government-backed Fannie Mae and Freddie Mac markets. Such “portfolio” lenders will generally sell mortgages directly to investors or clients rather than Fannie and Freddie.
Lender Requirements
No matter if you’re purchasing a co-op or condo, there are various financing options available to you. Condo financing differs slightly from that offered to single-family home purchasers and may involve extra steps and higher interest rates.
Lenders take into account both the borrower and condo project when considering mortgage loan applications, says Nakash. For instance, lenders may stipulate that buildings or projects on an approved list meet certain standards such as limiting investment units and having high levels of owner occupancy.
Condos that meet these requirements, known as warrantable condos, typically offer more loan programs such as Conventional, FHA and VA loans than non-warrantable ones; in terms of loans they have access to Conventional, FHA and VA options respectively. While non-warrantable units might only have access to certain loan programs with larger down payments necessary. Furthermore, lenders might review other aspects such as insurance costs for HOA budgets or reserves of the community in general – making condos especially appealing in densely populated areas or vacation spots where maintenance costs can be lower overall; hence their popularity among residents in these properties.
Closing
Financing a condo may prove more complex than financing a single-family home, as lenders approach condo loans differently from other properties. They may want more information on the building itself such as occupancy levels, maintenance records and HOA fees before giving out financing loans for them.
lenders typically require that both the condominium complex and homeowner’s association meet certain standards before they will approve loans for it. Fannie Mae, Freddie Mac and FHA all maintain lists of approved condominiums; typically this requires at least half to be owner-occupied while passing recent financial reviews of the complex.
Condos can be an attractive choice for new homebuyers despite these added requirements, offering lower price tags than single-family homes and less maintenance requirements than single-family dwellings. Furthermore, they allow home owners to build equity that could later be applied towards future purchases. Getting mortgage for a condo or a house is often possible with the right information and contact with the right lenders.
