Are Condominium Loans Harder To Get Than Home Mortgages?
Mortgage lenders view condominiums loans differently than single family home mortgage loans. Condominiums are considered riskier investments than town homes and single family homes. Many first time home buyers gravitate towards condominium purchases as their first home purchase due to the lower market price with condominiums but one of the things they do not take into consideration is that condominiums have mandatory homeowner association dues which can greatly impact the buying power of the subject condo. A first time home buyer who is limited on a monthly housing budget amount of $1,000 can qualify for a $60,000 condo but for the same monthly payment can purchase a single family home because the single family home does not have homeowners association dues. Some of the condominiums charge condo homeowners association dues as much as $500 which is over a $100,000 mortgage principal and interest payment. When considering to purchase a condominium unit, please compare the pros and cons and compare it to purchasing a single family home and take the condo homeowners association dues into consideration.
You can have the best credit in the world, the best income, and tons of assets but if you are pursuing in buying a condominium, be prepared to jump through obstacles that you would not normally face when buying a single family home.
Choose A Mortgage Loan Originator Experienced With Condominium Loans
There are so many condominium loans that cannot get done at the last minute and the condo home buyer gets denied not because they are not qualified as a borrower, but due to the condominium project. A lot of these mistakes can be avoided if the mortgage loan originator will question you about the condominium project prior to you submitting or accepting your real estate purchase contract. The first thing your mortgage loan originator should ask you to do is to complete a condominium questionnaire. Here is a condominium questionnaire http://gustancho.com/condominium-questionnaire/ that your mortgage loan originator should ask you to have the condominium association homeowners association manager to complete. Your mortgage lender should have an underwriter review this condominium questionnaire form and see that the mortgage lender will approve the condominium project.
FHA Approved Condo List And FHA Condo Guidelines
If you can only qualify for a FHA loan on a condo purchase, the condominium needs to be on the FHA approved condo list. Here is the link to see whether the condominium you want to purchase is on the FHA approved condominium list https://entp.hud.gov/idapp/html/condlook.cfm. If the condominium you want to purchase is not on the FHA approved condominium list, then you cannot get a condominium loan on the subject condo unit. You need to go with a conventional loan.
At least of 80% of all FHA insured mortgage loans in the condominium complex must be owner occupant condominiums. Condominium projects that had initial FHA insured mortgage loan borrowers turn their primary residences into rentals will not qualify for FHA condominium loans. A FHA mortgage loan borrower needs to be owner occupant for at least one year and after the one year can rent out their condominium and get another owner occupant property.
All condominiums need to be a warrantable condominium in order to be eligible for either a HUD approved or Conventional approved condominium loans. To be considered a warrantable condo, a minimum of 51% of the condominium units needs to be owner occupants and not rentals. To be eligible for either FHA or Conventional condominium loans, the condominium project needs to be warrantable. Non-warrantable condominium loans are available but via portfolio lenders. Portfolio lenders are mortgage lenders that hold their own paper and do not sell their mortgage loans to the secondary market to Fannie Mae and/or Freddie Mac.
Newer Condominiums: New Construction Condos
To be eligible for FHA condominium loans, the condominium project needs to have been completed for at least one year with no more pending construction phases or new additions in the pipeline. This translates into that intial condominium buyers on new construction condominiums need to either purchase them with cash or non-conforming condominium loans.
Restrictions On Condominium Ownership
Even though you might own a condominium unit, you will have restrictions and a set of condominium association rules that you need to abide by. Almost all condominiums will have a homeowners association and a homeowners associations due that needs to be paid in addition to your property taxes. Condominium mortgage lenders will want to see reserves from the homeowners association and normally want to see that 90% of homeowners association dues are paid timely.
Condominium mortgage lenders will frown upon the fact if the condominium complex has a large number of foreclosures and/or short sales and if the condo complex has a large number of foreclosures or short sales, they can deny the condominium loan.
If the condominium complex or its subsidiaries such as the garage or commercial space has pending litigation or is in bankruptcy, this can affect a condominium mortgage lender from approving a condominium unit loan. Building violations that involve structural issues will also pose a problem in getting condominium loans.
The condominium complex also needs sufficient insurance coverage on hazard coverage, liability coverage, and flood coverage.
One of the biggest issues with condominium loans is appraisal issues. Condominium mortgage lenders only want appraisal comparables that is within the condominium complex. If there are nothing but foreclosures and short sale comps in the condominium complex, that is the comparables that needs to be used. This often comes in at lower than the property is worth and causes problems in getting the condominium loan done and closed. If there are no comps within the condominium complex, then another condominium unit in a nearby condominium complex can possibly be used but that depends whether the mortgage lender will approve it or not.