August 5, 2021

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Jim’s Mortgage Corner | Real Estate


As the prices of single family homes continue to rise, I’ve received many requests to finance a condominium or a townhouse instead, as these are usually lower in price.

There are many reasons why one option is preferred over the other. I will primarily focus on the various funding options. I encourage you to speak with your realtor to determine what is best for you based on how long you want to live in your new home, whether you plan to sell or rent it out in the future, etc. As always, I recommend Borrowers can contact their lender and they can offer you the many loan options available.

The biggest difference between a condo and a townhouse is that you own the land with a townhouse, and this usually includes a small front and back yard. Because of this, condominiums tend to be cheaper since you don’t own the land.

Interest rates tend to be higher on condominiums because they pose a higher risk to mortgage lenders. You can buy a condominium with an FHA loan with a 3.5% down payment, but the condominium project must meet FHA approval. If a project has not been approved by the FHA, there are approaches a lender can use to apply for project approval and listing. Lenders can submit documents to the FHA for approval of individual condos. However, this process can also be challenging and time consuming. You can buy a condominium with a conventional loan with a 10% down payment. Depending on the condominium project, your lender may be able to get a condo waiver that allows a 5% down payment, but this is not the norm.

You can buy a condo with a VA home loan, but it must also be approved by the Veterans Administration. At least 50% of the residential units must be occupied by the owners and less than 15% of the residential units are in arrears with their HOA fees. In the case of newly built condominiums, at least 75% of the units must be sold. If they meet all of these requirements, there is a good chance they will be approved by the VA.

You can buy a condo with a USDA loan, but first in a USDA-approved rural area of ​​the country. The condominium project must also be approved by another body such as the HUD, FHA, VA, Fannie Mae, or Freddie Mac.

Applying for a row house mortgage is like applying for a single family home. Interest rates are similar and in most cases you can follow the same guidelines as you would for a single family home when financing a townhouse.

FHA, VA, and USDA loans require borrower occupancy and are not used on second homes or investment properties.

Most people believe they have a better chance of getting approved for a cheaper condo or townhouse than a single family home. I mentioned in a previous article that for every $ 10,000 you add to your deposit, you save about $ 50 per month on your payment. You can use the same simple formula when calculating the difference between a condo or a townhouse versus a single-family home with HOA contributions. If your HOA fees are $ 150 per month, it’s like buying a single family home with no HOA fees for an additional $ 30,000! For example, if you have been approved a $ 175,000 condominium mortgage, you might qualify for a single family home for $ 205,000 if the difference in HOA fees is $ 150 per month.

I recommend reaching out to your lender and they can offer you the many loan options available. Please contact me if you have any further questions.

Branch Manager, NmLS # 1721861

Cherry Creek Mortgage, LLC, NmLS 3001