Buying a Condo

What to know before buying a condo

Thinking about buying a condominium? Before you start looking at condos you're interested in buying, there are a few things you must know to ensure that your new condo qualifies for a mortgage loan. Condos are a bit different than single family homes and townhouses in that aspect, as they have additional requirements to qualify for a mortgage.

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How do condos differ from other property types?

A condominium is a real estate project in which each owner has title to a unit in a building (the space in-between the walls) plus an undivided interest in the common areas of the project, parking, roof, etc. Each owner is considered a member of the condo association and are typically required to pay monthly dues to pay for expenses such as property upkeep and maintenance, insurance, and certain utilities.

Because a condo owner is partially dependent on other owners in the building, lenders view condo financing as higher risk and have stricter underwriting guidelines for loans.

What can affect loan eligibility on a condo?

Condos are unique when it comes to qualifying for a conventional loan due to the fact that the condo association must also qualify for a borrower's mortgage to be approved. Here are some of the questions lenders will be asking to determine if the association qualifies:

Is the project incomplete and/or subject to additional phasing?
Have less than 90% of the units been sold to the owners?
Is the project operated as a hotel or provides hotel style services (registration, daily rentals)?
Is the project a hotel conversion, a timeshare, or a co-op?
Is more than 20% of the total space of the project used for non-residential (commercial) purposes?
Does a single entity (the same individual, investor group, partnership, or corporation) own more than 10% of the total units in the project?
Is there any pending litigation against the homeowner association (HOA)?
Are there any special assessments pending or levied?
Are more than 49% of the units in the building rented?
Are more than 15% of the unit owners more than one month delinquent on their HOA fees?

If the answer is “yes” to any of the questions above, your condo might not qualify for conventional loan financing. But don’t worry, you may still be able to qualify you for FHA financing (government loans administered by the Department of Housing and Urban Development, or HUD), as those guidelines tend to be a bit less restrictive. With FHA loans, the eligibility determination is pretty simple: if the condominium project appears on the HUD condo approval database, you are clear to proceed.

Check out the HUD condo approval database

Keep in mind that if you think that you might be looking for a jumbo loan (in most areas, a loan amount over $424,100), many of the conventional loan rules apply, but there might be some additional condo project conditions that need to be met.

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