Mortgage Services For Condo Buyers: 10 Things You Need To Know
Those two words represent one of the greatest hurdles for first-time condo buyers, as condo mortgages are, in comparison to conventional home loans, more difficult to obtain.
There are very specific requirements that govern condo mortgages and some interesting challenges that await.
Here are ten things you need to know about condo mortgages and mortgage services.
Condo Mortgages: More Stringent Qualifications.
All mortgages require borrowers to meet specific standards.
Groundbreaking, I know.
The standards for condo loans are tighter than with other types of mortgages, however.
In addition to having outstanding creditworthiness and being able to make the substantial down payment, the overall state of the condo building or development must be taken into account.
In other words, if the fiscal health of the community is in dire straights, most mortgage services, and lenders will decline your loan.
And there's not much you can do about it.
Mortgage Services: Is It Warrantable...
Condo projects can fall into one of two categories. Warrantable condos are those that meet Fannie Mae and Freddie Mac standards:
No one entity owns more than 10% of the units
Minimum 51% of the units are owner-occupied
Less than 15% of units are behind on condo dues
HOA has no pending lawsuits
Developments that do not meet these standards are non-warrantable, and more challenging to secure mortgage services for.
Simply put, this is because they present a higher risk.
Fannie Mae and Freddie Mac have control over nearly half of all home loans in the country, and won't back non-warrantable condos.
Securing financing through separate means is the only option, but that comes with higher down payments and increased interest rates.
You Might Not Know If It's Non-Warrantable.
In many cases, mortgage services and lenders are can be alerted to the warrantability status of a condo at the end of the home buying process.
That means you can go through all of the motions, including the appraisal, and be denied at the last minute through no fault of your own.
Be sure to keep this in mind, and ask the question up front.
There Are Still Options For Non-Warrantable Condos.
As previously mentioned, you can try obtaining the funds you need through other sources.
Typically this translates to buying the property with cash (not viable for most individuals) or trying to secure a loan through a local bank.
Or, one can consider a private lender.
Insurance Rates Could Be Higher
Even for warrantable condos, you might be looking at an increase in insurance rates.
Fannie Mae requires that "borrowers who make a down payment that is less than 25% will pay either an extra 0.75% of the loan amount at the closing or an interest rate that is approximately 0.25% higher."
You May be Looking At a Larger Down Payment.
As noted above, a 25% down payment is mostly necessary for the best interest rates, as opposed to the 20% typically associated with single-family properties.
That said, if you are occupying the condo then the typical requirement for a down payment is 5%.
FHA Loans Are a Possibility
FHA loans don't require as large a down payment but have their own set of qualifications that projects must meet for eligibility.
In the U.S., the Department of Housing and Urban Development will allow you to search properties to help determine which ones meet the standards in advance.
...So Are VA Loans
If you're a veteran, the Veteran's Administration can provide assistance with mortgage services.
The VA has a larger approved list of condos than FHA, which are subject to different standards than FHA loans.
The VA's Veteran's Information Portal can help with searching through approved properties.
It's Not Just The Mortgage.
Remember that all condos are under the control of homeowner's associations or condominium board.
Though your monthly mortgage payment will likely be lower than it would with a single-family home, you'll have to factor association dues into your budget.
These will typically range from $100-$500, and average about $200.
These fees will change depending on the needs of the association, special assessments, and the age of the building.
So prepare for fluctuations!
As you're looking for mortgage services when buying a condo, take the above tips into consideration.
Mortgages are complicated as it is; so prepare yourself for what is a head.