Are Condominium Mortgage Loans Different?
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.
Condos are great because it does not require the maintenance a single family home requires. Many condominium complexes also offer luxury ammenties such as an in house gym, racketball court, tennis court, club house, indoor/outdoor pools, and on site dry cleaners. However, all of these ammenties comes with a hefty price tag called homeowners association dues which is a monthly mandatory charge that is collected to cover these ammenties and maintenance of the common areas. Mortgage lenders view condominium mortgage loans as more riskier than a single family home mortgage loan.
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 lending guidelines With a single family home, the process is straight forward where the mortgage lender orders the 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 the mortgage lender needs to see when it comes to condominium mortgage loans:
1. Condominium documents: All condominium homeowners associations are set by up by a official legal agreement. The condominium documents will need to be reviewed by the mortgage lender.
2. Overall condominium occupancy rate: Mortgage lenders will want to see the percentage of owner occupant condo units versus the percentage of investment condo units in the project. To be classified as a warrantable condo and be eligible with a conformining loan, there needs to be at least over 50% owner occupant units.
3. Financials of the condominium project: Depending on what the Automated Underwriting System requires, there are two types of reviews: Full financial review or 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 where the mortgage lender needs to see the full financials of the condo association finances which includes reserves, delinquencies, pending litigation, building violations, foreclosures in the condo project, and any other financials of the whole condominium project.
FHA Condominium Mortgage Loans
You can purchase a condominium with a FHA insured mortgage loan with 3.5% down payment. However, the condominium building needs to be FHA approved. If the condominium complex is not FHA approved, your only alternative in buying the condo is through a conventional mortgage 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.