Obstacles In Qualifying For Condominium Mortgage Loans


Obstacles In Qualifying For Condominium Mortgage Loans

This BLOG On Obstacles In Qualifying For Condominium Mortgage Loans Was UPDATED On March 31st, 2018

Many first time home buyers think that getting condominium mortgage loans are easier and requires less money and their monthly mortgage payments will be less.  That is not correct. There are many benefits in owning a condominium. However, condominium mortgage loans are much tougher to qualify than loans on single family homes.

  • Condos are great because it does not require a lot maintenance a single family home requires
  • Many condominium complexes also offer luxury amenities such as the following:
    • in house gym
    • racketball court
    • tennis court
    • club house
    • indoor/outdoor pools
    • on site dry cleaners
  • However, all of these amenities comes with a hefty price tag called homeowners association dues
  • Homeowners Association Dues or HOI are monthly mandatory charges that is collected to cover these amenities and maintenance of the common areas
  • HOI is another form of tax that condominium unit owners needs to pay for upkeep of the condo complex
  • Lenders view condominium mortgage loans as more riskier than loans on single family homes

Underwriting Guidelines On Condominium Mortgage Loans

Unlike single family homes, there are two phases of underwriting when it comes to condominium mortgage loans.

  • The first stage is that the mortgage loan applicant needs to be qualified and pre-approved
  • The second stage is that the condominium project needs to meet mortgage guidelines
  • With a single family home, the process is straight forward where lender orders home appraisal and goes off the appraisal report with regards to value and condition
  • It is quite more complicated when it comes to financing a condominium unit

The following is what lenders require to process and underwrite condominium mortgage loans:

  • Condominium documents: 
    • All condominium homeowners associations are set by up by a official legal agreement
    • The condominium documents will need to be reviewed by lender
  • Overall condominium occupancy rate: 
    • Lenders require a percentage of owner occupant condo units versus the percentage of investment condo units in the project
    • To be classified as a warrantable condo
    • To be eligible as a warrantable condo on conforming loans, there needs to be at least over 50% owner occupant units
  • Financials of the condominium project: 
    • Depending on what the Automated Underwriting System requires, there are two types of reviews: 
    • Full financial review
    • Limited financial review
    • Those condo unit buyers putting down less than 20% down payment on a condo purchase, a full financial review will most likely be required
    • Full Reviews is where the lender needs to see the full financials of the condo association finances
    • This includes the following:
      • reserves
      • delinquencies
      • pending litigation
      • building violations
      • foreclosures in the condo project
      • other financials of the whole condominium project

FHA Condominium Mortgage Loans

Home Buyers can purchase a condominium with a FHA insured mortgage loan with 3.5% down payment.

  • However, the condominium building and/or complex needs to be FHA approved condo complex
  • If the condominium complex is not FHA approved, only alternative in buying the condo is through a conventional loans or portfolio loan
  • A non FHA condo complex can become FHA approved
  • In order to be FHA approved, the condo association needs to apply and pay the proper fees
  • For a non FHA approved condo complex to become FHA approved, the condominium complex needs to have at least 50% or more owner occupied units
  • Not more than 15% of the condo units in the condominium complex can have the condo association dues be in arrears for more than 30 days
  • Also, the maximum amount of units in the condo complex that can have FHA insured mortgage loans is capped at 30% of the total condo units

Condo home buyers needing to qualify for condominium mortgage loans with a direct lender with no overlays on government and conventional loans, please contact us at 262-716-8151 or text us for faster response.

Gustan Cho


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