September 19, 2021

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What To Know About Condo Loans

Financing the purchase of one Condominium home is a little different than buying a family home. For one, a condo mortgage is usually associated with a higher price interestAlso, thanks to the additional underwriting, it can be more difficult to qualify.

Here’s what you need to know about condominium mortgages, and how the process of getting a mortgage can differ from financing other types of housing.

How does the financing of condominiums work?

Condominium financing is usually similar Financing a single family home. In fact, the same type of single family home buyer loans are available for condo buyers, including:

The main differences are that condominium mortgages often involve extra steps and paperwork, and come with slightly higher interest rates.

“Interest rates are typically 0.125 to 0.25 percent higher,” said Steve Nakash, general manager of Blue Spot Home Loans in Denver, a division of Cherry Creek Mortgage. “That’s because any restrictions or assessments placed on the property by the Home Owners Association (HOA) or the condominium association are beyond the control of the borrower, creating a layer of risk for lenders.”

Your lender will need to obtain additional documents from either the condominium association, the HOA, or the management company. These can be:

  • A questionnaire form about the condominium project
  • Information on how many units are owned by owners or tenants and how many are owned by one unit
  • A copy of the condominium association’s main insurance policy

“Essentially, the lender must approve both the individual buyer and the condominium project for funding,” says Nakash.

To do this, the condominium project itself must be reviewed and meet lender standards. For example, current lending guidelines dictate that no more than 15 percent of shareholders may be in default Condominium feesAccording to Jeffrey Loyd, principal of Mortgage Acuity, a mortgage broker in Hackensack, New Jersey, an investor cannot own more than 10 percent of the shares.

In addition, the apartment must meet insurance protection standards and must not be involved in litigation that could result in financial losses for the condominium association.

“The lending guidelines don’t call for condominiums that devote more than 35 percent of their space to commercial space,” Loyd added. “That’s because lenders believe it can be risky for them to get a large portion of the building’s income from one or more commercial tenants.”

In some cases, a full review may be required that requires additional documentation to be obtained from the HOA or the management company, such as: B. Budget reports and a Covenants, Conditions and Restrictions (CC&R) document.

Condominium Mortgage Requirements

To qualify for condo finance, you must meet certain requirements for the type of loan you are pursuing. According to Orlando Miner, CEO of Miner Capital Funding in St. Louis, here are the various eligibility requirements:

Conventional loan

  • 3% – 5% minimum deposit
  • Minimum score of 620
  • Debt-Income Ratio (DTI) no more than 36%
  • Condominium must be your primary residence

FHA loans

You can search for FHA-approved condos through the US Department of Housing and Urban Development (HUD). website. The qualifications for an FHA loan include:

“The FHA requires that every project be reviewed and approved by the HUD or a delegated body,” said Esther Phillips, senior vice president of sales at Key Mortgage Services in Chicago. “The FHA also has an on-site approval process to approve a single entity vis-à-vis the entire association, but essentially requires the same amount of information and documentation.”

VA loan

  • You must be a military member or veteran or an eligible surviving spouse
  • No deposit required
  • No minimum score required
  • No maximum DTI ratio; However, they must have other “balancing factors” such as: B. a higher credit rating if your DTI ratio exceeds 41%
  • Condominium must be your primary residence

“The VA has its own approval process with similar requirements as the FHA and conventional funding,” says Phillips. The entire project needs to be reviewed and approved. “

You can search for VA approved condos in your state through the U.S. Department of Veterans Affairs (VA). Search tool. Just check “Approved” and then select your status for a list of projects.

USDA loan

  • Property must be in a rural location deemed eligible from the U.S. Department of Agriculture (USDA)
  • No deposit required
  • No minimum score required
  • DTI rate not more than 41%
  • Condominium must be your primary residence

How do I get a condo loan

To improve your chances of getting approval for condominium finance and buy an apartmentFollow these tips:

  • Carefully research condominium properties. “Make sure you want to buy from a well-run, financially healthy, condominium association that is mostly owner-occupiers,” recommends Loyd.
  • Discover different financing options and loan types. “Understand the type of loan you are trying to take out so you know if the project needs approval first, e. B. from the FHA or the VA, ”advises Phillips.
  • Expectation increased Closing costs and closing times. “The borrower has to pay for the documents required by the condo management agent such as the condo questionnaire, the condo financial statements and the insurance folder for the entire building,” states Loyd. “That could bring you back a few hundred dollars by the end of business. Since additional participants are involved in the credit process, such as For example, the Condo Association and its insurance company, expect longer closing times, often 30 days or more. “

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