General Mortgage Guidelines On Condominium Home Loans

General Mortgage Guidelines On Condominium Home Loans

This BLOG On General Mortgage Guidelines On Condominium Home Loans Was UPDATED On January 22nd, 2018

Many first time home buyers or home buyers who do not want the responsibility with home maintenance often opt to purchase a condominium unit.

  • Condominium Home Loans are more difficult to finance than single family homes
  • Lenders view condos as much riskier investments
  • There are more mortgage lending guidelines with condominium home loans
  • A condominium mortgage borrower might be fully qualified for a single family homes but may not qualify for condominium financing
  • Reason being is due to the mortgage lender’s lending guidelines on the subject condominium project
  • Here are additional guidelines on condominium home loans that apply on condos but not single family homes:
    • Condo Complex Financials
    • Recent comparable sales
    • Building condition
    • Occupancy rate
    • Foreclosure rates
    • Whether the condo project is FHA approved or not for FHA condo buyers

Condominium Appraisals

There are cases where a mortgage lender will not approve a condominium financing mortgage loan because the condominium project has no recent sales comparable to the subject unit.

  • The mortgage lender will not accept any comparable sales outside the condo project unit unless one comparable comes within the condo project
  • Before condo buyers go out and enter into a condominium purchase contract, make sure that condominium financing in place with a mortgage lender with little or no mortgage lender overlays on condominium financing
  • I have a substantial amount of clients who contact me where they are about to close on their condominium units but at the last minute are running into problems due to their mortgage lender’s internal lender overlays

FHA Condominium Home Loans Guidelines

As mentioned earlier, many first time home buyers lean towards purchasing a condominium as their first home purchase because condominiums are much lower than single family homes which means the down payment requirements are less.

  • Unfortunately, there are hurdles with condominium financing
  • Many first time home buyers and buyers with lower down payments and little reserves and prior bad credit cannot qualify for conventional mortgage loans and can only qualify for a FHA insured mortgage loan
  • This is the first hurdle condo buyers run into
  • The condominium complex needs to be FHA approved
  • Not all condominiums are FHA approved
  • The condominium complex needs to be on the FHA approved condominium list
  • If the condominium complex is not on the FHA approved condominium list, the condo buyer needs to seek conventional financing

Warrantable Versus Non-Warrantable Condos Home Loans

FHA condominium financing guidelines also require that at least 51% of condominium unit owners are to be owner occupied units.

  • If more than 50% of the condominium units are rentals, the condominium may not be eligible for FHA condominium financing
  • The reasoning behind this guideline is the perception that owner occupied units are better maintained than rental units

FHA Condominium Home Loans For New Construction Projects

FHA condominium financing guidelines for new condominium projects are very strict.

  • The condominium project needs to be completed for a minimum of a year
  • There cannot be any future construction phases in the pipeline
  • Due to these FHA requirements, the initial owners of new condominium projects either need to be conventional mortgage loan borrowers or cash buyers

FHA Spot Review For Condominium Home Loans

FHA condominium financing guidelines used to allow for FHA Spot Review.

  • FHA Spot Review means that a FHA condominium buyer can purchase a non FHA approved condominium unit as long as the condominium association completes a condominium questionnaire
  • On FHA Spot Reviews, FHA reviews it and approves the condominium financing request on a non FHA approved condominium unit
  • Unfortunately, FHA Spot Review is no longer available
  • FHA has eliminated their FHA Spot Review condominium financing program

Condominium Home Loans Requirement For All Condominium Mortgage Loans

General condominium financing guidelines for both conventional mortgage loans and FHA insured mortgage loans are the following.

  • Condominium complex needs to be financially sound:
    • Condominium financing mortgage lenders, whether conventional lenders or FHA lenders, want to see the condominium project financially sound
      • Sufficient reserves
      • No pending litigation
      • Sufficient insurance coverage
      • No pending bankruptcy proceedings
      • 85% of homeowners association dues being paid on time by condominium unit owners
      • No more than a certain amount of units under foreclosure
  • No building violations or structural issues
    • The condominium complex cannot have any pending major building violations or structural issues such as foundation problems, major electrical, plumbing, or electrical problems, or any other issues that can put the financial status of the condominium project at jeopardy

Qualifying For Condominium Home Loans With Direct Lender With No Overlays

Condominium home buyers who need to qualify for a condominium home loans with a direct lender with no overlays on condominium loans, please contact The Gustan Cho Team at USA Mortgage at 262-716-8151 or email us at gcho@usa-mortgage.com. We are available 7 days a week, evenings, weekends, and holidays.

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