Wednesday, July 05, 2017

Getting Financing for the Condo You Want 

Getting financing for the condo you want is a bit different than obtaining a mortgage for a single family property. Because “different” can mean “difficult,” since the government agency backing the debt instrument has its own requirements. But, this doesn’t mean you’re out of luck getting financing for the condo you want -- it’s just a more involved process.

Getting Financing for the Condo You Want

About 94 percent of the home loan market is claimed by Fannie Mae, Freddie Mac, the FHA, and VA. And, all have their own requirements. The reason for this is when you purchase a condo (a type of legal ownership that’s more close to a cooperative), you’re not getting a fee simple title. 

In other words, you’re buying into the entire community, essentially obtaining a percentage or share. So, lenders place restrictions on which condo communities receive mortgage approval. Here’s what you need to know about getting financing for the condo you want:

  • Generally a higher interest rate. In general, mortgage interest rates for condos are slightly higher than single family residences. The reason is quite simple -- there’s more risk to the lender. Because it’s part of a community, lenders charge higher rates but these can be avoiding by paying points. Just understand the lender, condo community, geographic location, and more all play a role.
  • Bigger down payment requirement. Usually, buyers who make a down payment of 20 percent or more qualify for more diverse types of loans, as well as escape PMI or private mortgage insurance (which protects the lender in case of a borrower’s default). However, a down payment for a condo typically runs a bit higher, about 25 percent. Now, this doesn’t mean it’s always the case, in some markets, down payments can be the same as single family, or 20 percent. Here again, there are many factors which make a difference.
  • The homeowner’s association fees. Not only will you have to qualify for the monthly payment, but don’t forget about the HOA fees. These range from just a few hundred dollars to much more. Now, this helps you because the HOA is responsible for common area maintenance and repairs. But it still represents additional costs. Your monthly mortgage payment and HOA fee combined should not exceed 25 percent of your monthly income.
  • Property qualification factors. One factor which really hit a substantial amount of condo buyers during the wake of the housing crisis was property qualification. If there are too many vacant units and/or too many rented out, lenders tend to frown on this.

Just be prepared and careful about which condo community you ultimately decide to live in. Article courtesy of

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