Thinking of buying a condo?
Want to know if the property you’ve got your eye on is eligible for mortgage financing? If so, you’ve come to the right place. Many factors influence financing eligibility, and some may be out of your and our control. We’ve put together a list of conditions to help you determine whether or not the condo may qualify. Then we’ll discuss what you need to know to actually get approved.
Can You Finance a Condo?
In some cases, depending on factors like the occupancy, construction status and financial solvency of the condo project, there are restrictions on whether you can get a mortgage for a particular condo. What follows is a list of absolute showstoppers in the condo finance process. If you get through this list without any red flags, we’ll move on to what you need to know about the approval process.
If any of the conditions below apply, the condo is ineligible for financing with Quicken Loans at this time:
- The site contains any of the following: a houseboat or floating home, segmented ownership, a manufactured home or timeshare units.
- The condo project has more than 25% commercial or mixed-use space. In addition, the homeowners association (HOA) may have to adhere to guidelines regarding how much of its budget can come from fees related to the use of this space in certain cases.
- You only have rights to occupy the condo and don’t own it. These condos are also known as community apartments, common interest apartments or tenants-in-common properties.
- The property is being used as both a condo and a hotel or has hotel amenities, such as the ability for the HOA to do short-term rentals for units in the project.
- When the project is intended to help residents meet specialized health and housing needs in the future, these services are owned by the HOA and owners are required to purchase or use the services.
- The property is an investment security, which acts as a liquid asset, and has documents on file with the Securities and Exchange Commission (SEC).
Nod your head yes to any of the above? If so, your condo likely isn’t eligible for financing. On the other hand, if everything checks out, you can go on to the next step. Before that, though, let’s touch on some terminology you might see.
Types of Condo Loan Approvals
In case you haven’t noticed up to this point, there are really two parts to qualification for any condo approval. There are your qualifications – these are the traditional items that impact your loan qualification, like income, assets and credit.
This second part of your mortgage qualification process has to do with the condo itself. Why is a lender so interested in how many units have sold, and why does it have certain guidelines around HOA budgets?
When you buy a condo, part of the property value for the condo is based on having access to communal resources like snow removal, lawn maintenance services, tennis courts or a pool. The association is also often responsible for maintaining the exterior of your home (e.g., your roof). If the association doesn’t have enough money from dues or other assessments to cover maintenance and these resources might no longer be available, it can seriously impact your property value.
Because the lender is making the loan to you on the basis that they’ll be able to recover their money in the event that you can no longer make your payment, the property value is pretty important. It also protects you. If the budget checks out, chances are good you’ll be able to enjoy the amenities you were promised well into the future.
When it comes to condo approvals, these typically fall into two categories.
We’ll start with government-backed condo loans because they have lists of approved condo projects. If your condo is on the list, you’re good to go.
FHA loans are the simplest to start with. Just check the FHA condo list.
With VA loans, if the complex was constructed after December 9, 2009, you can check the VA condo list. Condos built prior to that date may be approved under the FHA guidelines and backed by the VA.
If you need FHA or VA approval, your lender may be able to walk you through the steps to get the complex approved.
For USDA loans, condos on either the FHA or VA list will be able to move forward under those guidelines. If your complex didn’t make these lists, you may still be able to get approval under the guidelines for conventional loans. We’ll get into those now.
When it comes to conventional loans, things get slightly more complicated, but we’ll break it down.
The first thing you need to know is that there are two types of reviews: limited and full. You may need to go through a full review if you have a low down payment, or you meet one of several other criteria. Full reviews aren’t necessarily a bad thing, but they do require working with your HOA to get more information upfront.
As part of reviewing eligibility, your lender will be looking for several things. For example, there are limits on how many members of the HOA can be behind on their dues. The association also has to be putting at least 10% of its budget aside for future emergency expenses.
In many cases, the units in the complex have to be 90% occupied. In terms of the makeup of the complex itself, if you’re trying to get an investment property, it may be necessary that at least 50% of the other units in the complex be primary or vacation homes.
Other Things to Know
In addition to receiving approval, the lender has to see a few other miscellaneous items, such as:
- Any pending legal issues need to be reviewed. If they put the budget and the association in danger or involve safety issues, it may not be possible to approve the loan.
- There can’t be any restrictions on the property in the bylaws – such as sale restrictions – that could prevent you from paying off your loan.
- The condo project must have an appropriate level of property, liability and fidelity insurance to protect against losses. You can get this documentation from your developer or HOA.
Armed with these tips, are you ready to get into a condo? You can get started online or give one of our Home Loan Experts a call at (800) 785-4788.