Condominiums are a housing choice many people are drawn to - whether they are looking to downsize, live in a city, or don’t want to deal with the upkeep of a yard and exterior. But obtaining a mortgage for a condo comes with an additional set of requirements.
When lenders loan money for a mortgage, they must factor in whether or not they will recover that money if you fail to make payments. This means lenders rely on the property value to stay up to date, so that there is not a decrease in value.The property value of the condo includes the communal resources of the lawns, exterior, and features like a pool. If that property value is not suitable, or the financial situation of the condo association is on rocky ground, lenders may not approve a mortgage loan.
In order to get a mortgage, you must meet specific requirements. These vary depending on the type of loan, but overall you will need a decent credit score and between 3% to 5% down payment for Conventional and FHA loans. For VA, USDA, and CHFA loans, you must meet additional requirements.
Along with reviewing your financial situation and paperwork, lenders will also look into the history of the condo association you want to buy in. Condo projects that don’t meet standards set by Fannie Mae and Freddie Mac are known as “non-warrantable,” making it difficult to get a conventional loan. Condos may be considered non-warrantable if the project is not complete, one person owns more than 10% of the units, the community allows short-term rentals, or a high number of units are delinquent on HOA dues, among other reasons.
Government-backed loans have pre-approved lists of condo projects, making it easy for you to determine if the condo you are looking at will be able to get approved. You can go to the FHA Condo List or the VA Condo List to determine what associations are pre-approved for those loan types.
If you are going for a conventional loan, the process is a bit more involved. Your lender will be looking into factors such as how much HOA money is put aside for future emergency expenses and how much of the complex is occupied.
The added requirements for obtaining a mortgage for a condo don’t just protect the lender, but you as well. Knowing the condo association you will be living in is up to date on finances, budgets appropriately, and is full of responsible owners, should give you peace of mind.
Not sure if you (or an association) qualify for a condominium mortgage? Your mortgage broker will be able to answer your questions and explain your options. Contact us for more information.
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