row of condosFannie Mae has made some changes that may make it easier to get financing for your condo.

Condos are looked at differently than single-family housing. With a single-family house, the rules for financing are primarily concerned with how good the property condition is and whether the house could be sold on the open market.

Condos go a little further than that in terms of requirements. There are regulations for the condo complex itself as well as the unit you’re trying to get financing for. Before we get into what’s changed, let’s talk about some general issues that come up in getting a mortgage for a condo.

Get to Know the Homeowner’s Association

When you buy a condo, not only do you have to worry about getting your personal information together for the loan, but you also need to get some information from the condo complex as well.

In a condo arrangement, you own your dwelling and the condo association owns the land and the communal spaces. Because the communal spaces are an important part of your ownership in a condo, the investor has to know certain things. For example, there may be requirements as to how many units in the condo complex have to be occupied when you apply for financing. There are limits to how many units can be owned by a single entity. There are also common restrictions on the number of people who can be behind on their homeowner’s association dues.

The Review Process

The review process that potential condo buyers must submit to is designed to make sure the condo project and the homeowners association are in good shape from a financial standpoint.

There are two types of reviews: limited and full. The difference between these two types of reviews is how thorough they are. Which type of review you have is dependent on your property type and down payment. After going over that, we’ll explain a little bit about each type of review.

Limited or Full?

A limited review requires somewhat less documentation from your homeowners association than a full review. Which one you have to deal with depends on your down payment and whether this is your primary home, a second home or an investment property.

Fannie Mae recently changed its condo policy on primary homes to be in line with Freddie Mac. Both agencies require a 10% down payment for a limited review. Second homes require a 25% down payment, while investment homes are always full reviews.

What’s the Difference?

Financing a condo always requires certain information from the homeowners association.

In a limited review, clients must submit information on any commercial space and ownership distribution. You also have to turn in information from the condo complex on any pending legal action taking place. The condo project may be required to have certain types of insurance coverage. There are limits on how much income a homeowners association can earn from nonbusiness operations.

In a full review, there are a few additional things you need to get from the condo operations people. These include certification from the person managing the condo project that it has been approved, a condo questionnaire and a copy of the budget for review. There are more details, but this covers the basics.

It’s Getting (Slightly) Easier

As you can see, you have to do a little more legwork to buy a condo. Believe it or not though, things have gotten easier as Fannie Mae has changed several of its policies related to condo finance recently. I’ve included a listing of those changes below:

  • You can get a limited review with a down payment of 10% whether your loan is backed by Fannie Mae or Freddie Mac.
  • The amount of space within the project that can be used for commercial space increased.
  • The number of units that may be owned by a single individual or investor has increased.
  • The requirement that projects carry fidelity insurance has been removed on some loans.
  • More units within a project can be rentals.

With these changes, it should be easier to obtain a mortgage for a condo. However, there’s some extra documentation you have to get about the condo project no matter what.

Still have questions? Leave us a note in the comments and we’ll help you out.

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This Post Has 18 Comments

    1. Hi Paul:

      You can get into a second home condo with a down payment of as little as 10%, but it will require a full condo review. Limited reviews require a 25% down payment. If you would like to get started, one of our Home Loan Experts can help at (888) 980-6716. Hope this helps!

      1. The article says you can now get a limited review with 10% not 25%. A real estate agent just told me same thing on a condo I was interested in.

        1. Hi Nicole:

          I understand your confusion. You can get a Type A limited review if it’s going to be a primary property with 10% down. The person in this case that I was replying to was asking about vacation homes which are treated differently. If you would like to go over your options, I recommend speaking with one of our Home Loan Experts at (888) 980-6716. Hope this helps!

          Thanks,
          Kevin Graham

  1. Question, please. 1. Does the rule of maximum ownership still apply, if the sole owner of three condos has CC&R’s (founding documents) which stipulate that there will be no HOA unless one or more of the units are sold? 2. What good does it do the lender to have these restrictions of ownership? I don’t understand how an owner of two or all three of the condos presents any greater risk to the lender than an owner of one unit does. Thanks.

    1. Hi John:

      In terms of question one, I want to make sure you get the right information so I’m going to refer you to one of our Home Loan Experts. You can get in touch with them at (888) 980-6716. As to the second question:

      When you have a homeowners or condo association, part of the value of your property is the services that association provides. If one owner were telling the majority of units and pay most of the dues, the association as a whole might fail if that owner walked away. That’s the reasoning behind the restrictions.

      Thanks,
      Kevin Graham

  2. What are the differences between the paperwork requirements for obtaining an FHA condo mortgage and a non-FHA mortgage?

    1. Hi Dorothy:

      From a client qualification standpoint, there may be minor differences in paperwork. However, the big difference between FHA and non-FHA is slightly looser credit requirements. You can get an FHA mortgage with a credit score of as low as 580 depending on other qualifying factors. With a conventional loan, the minimum is 620. In terms of condos, the major difference is that FHA condos have to be approved through the FHA beforehand. This isn’t the case with conventional loans, although a budget review and other things may be taken into account in order to make sure the condo association is in good shape.

      Thanks,
      Kevin Graham

  3. Hi,

    We are going to buy a new condo, the closing date is Nov. 30 2017, and it is not FHA approved. Is it possible for us to get the loan considering the conditions in Fannie Mae?

    Thanks

    Maria

    1. Hey Maria! We would need more information about the condo complex. We recommend that you talk to one of our Home Loan Experts by reaching out at (888) 980-6716. Hope this helps, Allison.

  4. The article states that “the number of units that may be owned by a single individual or investor has increased.” From what to what, please?

    1. Hi Lorraine:

      The reason we didn’t get into great detail in the actual article is that it depends on the size of the project. With that in mind, here are the guidelines:

      if it’s a condo complex that has more than 20 units, a single individual or investor cannot own more than 10% of the units.

      If there are between 5 – 20 units, a single owner cannot own more than two.

      Anything lower than that and you can’t own more than one unit.

      Thanks,
      Kevin Graham

    1. I think you’re asking how long you can rent it before it’s considered an investment property. If you are doing it with a second home, you can rent for up to 14 days per year.

  5. Fannie Mae kicked back my loan 3 days prior to closing because the appraisal states 21/40 units are owned by one entity and 25/40 are rentals. What options are available in this situation? Thanks

    1. Hi Raegan:

      I’m not sure what your options would be in this situation. I recommend you talk to one of our Home Loan Experts so you get a better idea of all the options available to you. You can get in touch with them by filling out this form or calling (888) 728-4702.

      Thanks,
      Kevin Graham

  6. Is there a required amount the condo association has to have in reserves, for a prospective buyer to secure a mortgage?

    1. Hi Carolyn:

      Specific reserve requirements depend on the type of condo financing you’re doing which depends on your down payment. I’m going to have someone reach out to you about this.

      Thanks,
      Kevin Graham

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