Condo Loans: What You Need to Know
Low maintenance, sky-high views, and a fitness center you can get to without having to warm up the car. These are just some of the reasons homebuyers zero in on condominiums as their ideal residence. But before saying yes to the address, there are a few things to know about condo loans.
Qualifying Yourself for a Condo Loan
When it comes to condos financing, there are two entities which need to qualify: you and the building itself. Qualifications of the borrower are essentially the same as any other property type: decent credit, low debt-to-income ratio, and proof of income. It’s always a good idea to get pre-qualified, so you’ll be ready when the perfect place finds you.
Qualifying the Building
Lenders want to ensure the condominium building they are financing will be well taken care of. Is the association in good standing? In the case of some catastrophic event, is there enough insurance to cover all the unit owners? Are the property managers currently being sued? These questions and the ones below are good to ask as you shop for your piece of the city skyline.
- How Many Units Are Owner-Occupied?
The answer to this question depends both on the condominium property and type of loan for which you wish to qualify. A good rule of thumb is an owner-occupancy rate of 50% or more, but there are several ways to still get your mortgage approved even with less.For established condos and conventional loans, the owner-occupancy rate is irrelevant for primary residence and second home buyers. Even an investor-buyer may be able to qualify for a limited review which does not drill down on owner-occupancy ratios.
For established condos and FHA loans, the base requirement is 50%. However, there are exceptions to only 35% if certain criteria are met.
If you are looking at a shiny, new construction project, at least 50% must be owner-occupied or second homes in the subject legal phase or the entire project.
The bottom line: owner-occupancy requirements vary. It is highly advisable to consult with a mortgage lender early in the process to help you determine whether the building you are looking at will qualify.
- Are There Financial Reserves?
Not only do you want to make sure the condo association carries sufficient insurance and the majority of owners are up to date on their dues, but also that there are ample reserves for unexpected maintenance. If not, and something major (i.e. HVAC system) falls into disrepair, it could mean a major jump in dues for unit owners. Thus, higher risk for the lender.
- Is Any Part of the Building Incomplete or Under Construction?
If you’ve tried to obtain financing for a new-build condo, then you know it’s pretty tough. What many condo buyers will potentially overlook is construction of the entire building. While your particular unit may be complete, make sure you speak with a lender right away if other units in the building are still unfinished.
Just because condos require special financing, that doesn’t mean they have to be scary. Let us be your Condo Loan Experts. We have helped happy condo owners from Chicago to Nashville and everywhere in between. Get started today with our Rate and Payment Quote tool. Chose condo as your home type and simply fill in the rest.