Are you thinking about buying a condo? Financing a condo involves more than just your income and credit, the association also has to be approved. Here is a list of things to know when you are looking at financing a condo.
Condos may be approved by FHA and VA, there are websites for both programs that list approved and rejected condos.
When you are looking at financing with a conventional loan, there are different factors that go into each approval.
Here are some deal breakers for conventional financing:
- Does the site contain houseboat, manufactured homes or timeshare units?
- Do you have rights to occupy the condo but don’t own it? Also known as community or common interest apartments.
- Project facilities are owned by the developer and are subject to be leased by the HOA to another party.
- The builder is in control of the HOA.
Here are some factors that won’t disqualify the condo but may make financing it more difficult:
- Master insurance policy max deductible is greater than 5%
- The HOA owns or operates businesses, such as a day care of spa
- More than 35% of the project development is reserved for commercial or non-resident use, including businesses like stores
- The condo is subject to current litigation
- The property is a former apartment building that sold all of the units to individual owners
- More than 15% of the units are delinquent in their HOA dues for at least 30 days
- A single entity, such as a corporation or individual investor owns more than 20% of the units in the development
- HOA holds the lender responsible for more than 3 months of HOA dues in case of a foreclosure
These rules apply to Fannie Mae financing but most of them also apply to Freddie Mac. There are different programs such as non-warrantable condo programs that you may be able to use for financing with some of these issues but the down payment is usually higher and the interest rate is also higher. There are times we can ask for an exception and depending on what the issue is, it may be granted.
Condos are typically an apartment style building but there are also many condos that look like townhomes. The difference is if you own the land or not. Normally the legal description will help define whether it is a condo or not. If there is a CIC number in the legal description, it is typically a condo.
If you are looking at a condo and not sure whether the condo is eligible for conventional financing (or FHA/VA), please reach out. We have access to the approval status of many condos. The current issue with condo financing is the master insurance policy which Sharlene discussed last week. There are condos that may have been approved last year that will not be approved this year with the insurance renewals. Getting a resale disclosure and the current master insurance policy will help to answer the insurance questions.
Condos can be a great way to get into homeownership and for some people it’s a great way to downsize. Let me know if we can answer any questions about the condo you are looking at.
Leslie Vanderwerf, NMLS ID#335509, CrossCountry Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website
