
Buying a condo is a little different than buying a single family home. In a condo you have shared spaces and an association and it makes financing a bit more involved.
Condos are individually owned units inside a larger building, usually looking like an apartment complex. A townhome is an attached home and you own the land. With a condo you do not own the land it’s built on. There are condos that look like townhomes, but it has to do with the legal description.
Most of the condo financing is similar to a single family home, you can use conventional, FHA, VA, USDA and jumbo mortgages. The credit scores and debt to income requirements will be the same. With a single family home, as long as the borrower qualifies and the home appraises, there isn’t much more to worry about. With a condo you need to factor in the condo project.
With a condo, the appraisal will look at the individual unit, but also the entire complex. It will factor in the condition of the shared areas and amenities. The homeowner’s association can influence the value and there is a condo questionnaire that the appraiser will want to see along with the underwriter. The questionnaire will ask about the number of units that might be rented, if the dues are paid on time by everyone in the association. It helps to let the underwriter know if the association is financially stable.
The homeowners insurance needs to cover your own unit and also there is typically a master policy that covers the entire complex. The master policy will cover the exterior and common areas. Some master policies may cover part of your own unit, you will want to look at the policy to see what kind of coverage you need for yourself. One area that has been very volatile lately is the wind and hail coverage. If it is over the allowed deductible, the condo may not be financed with a conventional loan.
Not all condos are FHA or VA approved. It is possible to get a spot approval for an FHA loan, but it will add a few days for the spot approval.
For condos that don’t meet conventional financing, you may be able to finance with special financing. Non-warrantable condos may be involved in on-going litigation, have too many units rented to non-owners, have excessive non-residential spaces (usually retail or office space) or the unit may still be under construction. Non-warrantable condo financing is possible but will usually have a higher interest rate and require a larger down payment. It can also affect your ability to sell the condo in the future.
Condo financing doesn’t have to be difficult but if you have a loan officer that understands what is required, it can make it much easier. Asking questions up front can help. In the past year, the wind and hail deductible has been the biggest challenge. Make sure you have a loan officer that understands condos!
Leslie Vanderwerf, NMLS ID#335509, CrossCountry Mortgage LLC, An Equal Housing Lender, NMLS#3029 – Email – Website