How much money do you have to put down on a condo?

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If you're thinking about buying a condo, you need to have a deposit in order to qualify for a mortgage. While the standard deposit amount for a condo is 20-25 percent of the home's value, a much smaller 3-15 percent deposit may be possible for government loans or other non-conventional arrangements. A home loan for a condo may also come with a higher interest rate than that for a comparable house.   

The wide variation in down payment amounts is due to the difference between conventional and non-conventional loans and the hybrid form of ownership involved with condo projects. Whether you're in the US or Canada, a 20-25 percent down payment will help you to access lower interest rates and allow you to avoid government loans and private mortgage insurance (PMI).

Conventional vs non-conventional loans

Conventional loans are offered by private lenders and do not come with any form of government insurance. Conventional loan requirements are more stringent than government loans, with a down payment of 20-25 percent typically required along with a healthy credit score. Available through banks and other traditional lenders, conventional mortgages often come with lower interest rates.  

If you qualify for a Federal Housing Administration (FHA) mortgage or other government insured loan, you may be able to get a mortgage with a much smaller deposit. First-time condo buyers often choose FHA loans due to lower down payments and less stringent credit score criteria. For example, people with a 500 FICO score can qualify for an FHA mortgage with as little as a 10 percent deposit.

Borrowers with a 580 or higher FICO score may be able to qualify for an FHA loan with an even smaller 3.5 percent down payment, although you will have to pay an upfront mortgage insurance fee of 1.75 percent. If you're a military veteran and a first-time buyer, you may be able to qualify for a VA-guaranteed mortgage which requires no down payment whatsoever. It’s important to note, however, that low-down-payments are often accompanied by mortgage insurance and higher interest rates.

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Ownership arrangement

While the down payment amount needed for condos should be similar to that for detached houses, condo developments need to meet additional qualification standards set by the financial industry. Condos involve a hybrid form of ownership, with the individual taking ownership of the interior of the unit and the condo board in control of the land and building exterior. When it comes to mortgage approval, both the individual apartment owner and the condo board need to be approved by the lender.

In the United States, there are a number of condo requirements needed for FHA approved loans. Not only must the condo be included on the FHA-approved condominium list, other criteria also need to be followed. For example, at least 80 percent of all FHA loans in the complex must be for owner-occupied units, and at least 51 percent of the units must be owner-occupied. In addition, the project must have been completed for a year or more, and the condominium association must be able to prove financial health and adequate insurance coverage.

In Canada, the situation is similar, with conventional 20-25 percent deposit loans existing alongside high-ratio loans from non-conventional lenders. Because these alternative loans often come with higher interest rates and smaller down payments, they need to be insured by the Canada Mortgage and Housing Corporation (CMHC) or a similar organization. In all cases, the financial stability of your loan will depend on the financial health of the entire building. Low deposit loans can be more expensive and harder to access at times, with lenders often viewing condo loans as a more complex and potentially riskier investment.