Financing Condos!

You found a condominium you want to buy!  Fantastic!  Now comes the interesting part – how am I going to finance it?  I need a mortgage.

If the condo is FHA approved, it makes it a lot easier – you can get an FHA mortgage on it.  You only need 3.5% down and the seller can help pay some of the closing costs if you want them to.

If the condo is not FHA approved and you need a conventional loan, it gets a little more interesting!  First of all, it depends on the state you live  in.  If you are in Florida, it's almost impossible to finance without a substantial down payment!  Some investors will not finance any condos at all in Florida.  But we are in Minnesota, so right now you have a few options!  Every investor is different and if you don't have 20% down, you also have to follow mortgage insurance rules.  I went through the guidelines with a few different investors and each one is different!  Some require 5% down and others want 10% down.  The interest rates will also vary based on your down payment and your credit score.  Many investors will charge a slightly higher interest rate on condos.

If you don't have 20% down, then you need to follow both investor guidelines and mortgage insurance guidelines!  Some mortgage insurance companies still show the Minneapolis St Paul area as a declining market and they require a minimum down of 15% – if they will even insure condos.  There are a couple MI companies that show Minneapolis St Paul as stable or a better level than declining. Those companies will allow 5-10% down on condos.  They also require credit scores of at least 680, but several require 700.  Mortgage insurance companies will also require your debt to income ratio not be above 41% (that's your total monthly debt - house payment, association dues, credit card payments, car payments, etc.)  Some MI companies may allow a debt to income ratio of 45% with higher credit scores.

If you can put 20% down, you don't need to follow some of the rules above, but may still be charged a slighly higher rate (about .125% at most) if you are purchasing a condo.

Remember that some townhomes are actually condos.  It depends on the legal description of the building and how the builder started it.  Many townhome developments look like townhomes, but are actually condos and have to follow the rules for condos.

If you are looking at condos and townhomes, check with your real estate agent and ask them what the building is – condo or not.  Then check with your loan officer and see what you can qualify for and if they can get you a loan for 5% down in the area you are looking.  It is possible, it just takes some research to see what you can do!

Leslie Vanderwerf, Advisors Mortgage - Email – Website