What is a condo?
A condo or condo is a type of residential property within the community of another unit. Condos are privately owned, but owners share common areas and usually pay membership fees to maintain these areas. Communities are typically run by the association or board of directors and property management companies.
Can I fund a condo?
If you are eligible, you can fund your condo with a condo mortgage. The same type of mortgage available to single-family home buyers can also be used by condo buyers, including traditional loans and FHA loans.
Condo Mortgage Requirements
There are many types of mortgages that can help you buy a condo. The eligibility requirements for each type are as follows:
What to expect when getting a condo mortgage
More scrutiny about underwriting
The key difference between condo mortgages and detached home mortgages: more scrutiny layer in underwriting. For condo mortgages, the lender will consider the finances and overall health of the condo community, including whether you are currently in litigation or experiencing other issues, as well as your financial situation.
For example, under traditional condominium mortgage guidelines, under 15% of unit owners may be delayed by more than 60 days in membership fees, and the condominium association should have a reasonable budget.
Some condom mortgage types allow lenders to approve loans based on a unit-only valuation, but that doesn’t necessarily make things easier.
“The FHA has a spot approval process to approve a single unit for the entire association, but essentially requires the same amount of information and documentation,” said Esther Phillips, Senior Vice President and Director of Sales for Chicago-based leading mortgage services. “The VA has its own approval process and requirements similar to both FHA and traditional funding, but single unit approval is not permitted. You will need to review and approve the entire project.”
Insurance requirements
In addition to more complicated underwriting, you will need to obtain condo insurance, and the community itself must meet insurance coverage standards. This usually requires you or the association to provide your lender with a copy of the project’s master insurance contract.
Possibility of higher interest rates
Comparing mortgage lenders with interest rates may lead to condo loan offers with slightly higher interest rates.
“We’re committed to providing a great opportunity to help you,” said Steve Nakash, managing director of FBC Mortgage in Denver, Colorado. “That is because the restrictions or valuations imposed by the Real Estate Homeowners Association (HOA) or Condominium Association are outside the control of the borrower and create a layer of risk for the lender.”
Tips for getting a condo mortgage
- Carefully study the properties of the condo. Consider the finances and residents of your community, and what is not permitted. “There may be restrictions on the internal renovations you can make, and there are certainly restrictions on external modifications,” says Nick Wemis, an Interrog real estate agent in Los Altos, California. “For example, if you’re going to tour a condo that needs an update, understand what you’re allowed before making an offer.”
- Explore a variety of funding options and loan types. Depending on whether you want to use a condominium as your primary residence or use an investment or rental property, there may be many options. “Understand the type of loan you’re pursuing so you know if your project needs to be approved first, such as the FHA or VA,” says Phillips.
- Expect a higher Closure costs A longer timeline. The borrower is usually the person responsible for paying for copies of various documents. “That could put hundreds of dollars backwards when it closes,” says Jeffrey Lloyd, former principal of mortgage sight. “We also expect longer closing times to be longer than 30 days, with additional participants involved in the loan process, such as the Condominium Association and its insurance companies.”
