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Can You Mortgage A Condo

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There May Be Lots Of Restrictions

Can I buy a condo with a VA loan?

Often when you live in a condo, you share your space closely with others. As a result, associations can have many rules and restrictions. These rules might relate to everything from the number and size of allowed pets to whether you can rent out your condo unit.

Make sure you’re comfortable with any restrictions up front — and be aware that new rules could be added you might then be bound to live by. If you don’t want to give a lot of control over what you can do with your home to a condo association, a condo may not be the right choice for you.

Warrantable Vs Nonwarrantable Condos

A warrantable condo is one that potential home buyers can finance and underwrite using a conventional mortgage. In order to do so, the condo must first meet certain minimum guidelines laid out by government entities Freddie Mac and Fannie Mae. For example, to meet these requirements, sample guidelines include stipulations such as:

  • No single entity can own more than two units in projects consisting of five to 20 units, or 20% of units in projects consisting of 21 or more units
  • The unit is a detached condo
  • At least 50% of the units are owner-occupied or second homes for investment properties
  • Less than 15% of total units are 60 days or more in arrears on association dues
  • The homeowners association is not named in any lawsuits
  • Commercial space accounts for 35% or less of the total building square footage

Nonwarrantable condos are more difficult to buy and sell, as Freddie Mac and Fannie Mae have determined them to be too risky an acquisition, making them more difficult to acquire financing for. To obtain a nonwarrantable condo, you may have to seek outside financial assistance beyond that which could typically be obtained through a conventional mortgage or traditional lender.

Can You Get A Reverse Mortgage On A Condominium

Yes, you may obtain a reverse mortgage for a condo as long as you meet the requirements outlined by the HUD. A reverse mortgage allows senior homeowners to take advantage of their propertys equity and use it to settle debts, fund their retirement travel, or complete home renovations. This also provides an additional source of income for retirees to enjoy their retirement in their own homes.

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Condo Financing Is Different

Modified date: Apr. 11, 2019

As a Realtor, I know that condos are popular among first-time home buyers. After all, the average condo costs less than the average single-family home. .

Condos require less maintenance and many complexes offer amenities like gyms and pools, all of which are attractive to young, active owners.

But condos arent perfect.

There are homeowners association rules and monthly fees to cover association management and upkeep of common areas. And then theres the fact that condos can be more difficult to buy than single-family homes. And thats especially true if you want to use an FHA loan to buy a condo.

Whats Ahead:

What Is A Rent To Own Condo

Can You Get Fha Loan For Condo

In rent to own, you sign a standard lease agreement and the option to purchase the property later on. A portion of your monthly rent is put aside every month. When you are ready to buy the condo, that money is used as a down payment.

You combine the benefits of buying a condo with the financial ease of renting. Many Canadians are turning to lease to own condos to purchase their first properties.

Note Rent to own condos are great for those in difficult financial situations. However, they may be hard to find. Real estate agents can help you find a rent to own condo. With their industry contacts, they could even introduce you to an investor who may be willing to setup a rent to own contract for a specific condo.

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Pros Of Buying A Condo Vs A House

You dont have to deal with exterior property maintenance

Youre responsible only for whats inside the walls of your condominium everything outside those walls is handled by your condo owners association and paid for with your monthly dues.

You get the amenities of an apartment complex while building equity

As a condominium owner, your payment every month helps build equity, so you can get the benefit of homeownership without giving up the conveniences of apartment-style living.

Your condo may be cheaper than a house

Condos are typically cheaper to buy than single-family houses. The median sales price for a condominium in October 2020 was $273,600, according to the National Association of Realtors. In that same month, the median sales price for a single-family home was $317,700.

You get a sense of community

If youre an outgoing person, or simply like the hustle and bustle of having other people around, buying a condo can be a great way to build community and meet new people.

Cons Of Buying A Condo Vs A House

You have less flexibility

Condominium associations come with rules called covenants and restrictions, which may limit some lifestyle choices. You may not be allowed to have a pet, or you could be limited to a certain breed or size, for example.

You have higher monthly costs

When you own a condominium, you must pay your monthly condo owners association dues, which can increase over time. You also may run into special assessments levied to maintain and upgrade your building.

Condos can be harder to resell

Some condos put restrictions on who you can sell to, and if the association doesnt manage its budget well, potential homebuyers might be wary of buying your unit.

You may have challenges with neighbors

If you rent an apartment, you can always move when your lease is up. However, if you own a condo unit, things may be much tricker if issues crop up with neighbors.

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Things To Know About Buying A Condo

by Christy Bieber | Updated July 30, 2021 – First published on July 28, 2021

Many or all of the products here are from our partners that pay us a commission. Its how we make money. But our editorial integrity ensures our experts opinions arent influenced by compensation. Terms may apply to offers listed on this page.

Is a condo right for you?

Condominiums are an alternative to single-family homes or townhouses. They are similar to apartments in that you have a unit in a shared building where there are often many other units. But when you buy a condo, you own it rather than rent it.

If you’re considering a condo, there are a few things to know before you buy.

General Condo Loan Rules

Can you get a VA loan if you want to buy a condo?

If you can’t get an FHA loan for your condo, you can still apply for a conventional loan. Whether you obtain an FHA or a conventional loan, some condo loan rules are the same.

  • HOA delinquencies: In complexes where values have fallen across the board, dues often have not been paid for those in short sale status or which are bank-owned. Percentage minimums apply. Most of the time, at least 85% of homeowner association dues must be up to date.
  • Pending legislation: Lenders don’t want to see pending legislation in a condo complex. This is because lawsuits can be costly and take a lot of time to resolve.
  • Restrictive covenants: A restrictive covenant is a set of rules laying out what actions the real estate buyer must take or abstain from. Many banks will only lend money if the purchase is transferred “in fee simple,” which means without restrictions or claims against the property.
  • Insurance: The complex must maintain correct insurance such as hazard, liability, and flood insurance if needed.

On top of needing a stable income and decent credit for yourself as a borrower, your chosen condo project must be in good financial health as well.

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The Problem With Getting A Reverse Mortgage On A Condo

With FHA spot approval a distant memory, originators struggle to help condo owners secure a HECM

Ever since the Federal Housing Administration eliminated spot approvals for condominiums, reverse mortgage originators have logged countless hours helping prospective borrowers secure a HECM on their condo sometimes to no avail.

And, with the Department of Housing and Urban Developmentdragging its feet for the past two years on finalizing rules that would bring back spot approval for FHA loans, things might not change anytime soon.

Under current FHA policy, the only way to obtain a HECM on a condominium is to get FHA approval of the entire complex, a process that requires a good deal of documentation, including proof of adequate insurance, confirmation that no one individual owns more than 10% of the complex, evidence of sufficient cash reserves, and verification that at least 50% of the units are owner-occupied.

For HECM originators, the task of helping a condo owner get a reverse often comes with the added hassle of obtaining FHA approval of the entire complex, which some associations are unwilling to do.

When Im talking to a potential borrower and I find out that theyve got a condo, I say a little prayer and hope to God that theyre approved, but usually theyre not, said Philip Lipp of Allwest Mortgage in Valley Village, California.

Luddy also said he often encounters resistance from condo associations.

What Factors Affect My Eligibility To Get A Mortgage

There are a lot of factors that can affect not only your financing eligibility but also the terms of your loans, namely interest rate. Its important to know these factors ahead of time so you can position yourself accordingly to get triple-A rates if possible.

a. Credit Score

Your credit rating will come in to play. An antiquated metric, surely, but still one primarily used by banks. A ton of factors goes into what your credit rating is.

An excellent score is anywhere above 700, anything below and you may find troubles getting financing with one of the Big-5 Banks in Canada. Below 700 credit rating is still plenty enough for a B-Lender, so dont count yourself out if you have less than excellent credit.

b. Income to Debt

Income to debt is just a ratio of putting your debt service as a percentage compared to your income. For a simplified example, if you earn $10,000 per month and you have a $1000 school loan payment and a $2000 mortgage payment, you are at 30%. This means that of your monthly income, 30% covers your debt repayments.

Every bank is different, speaking in generalities, youll have trouble attaining financing if the mortgage loan will put you above 40% total debt to service. For investment units, banks will apply 50% of the rental income you receive against your debt repayment so that the qualification metrics may be much lower.

c. Self Employment or not enough income history

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What To Ask A Lender About Reverse Mortgages

Can you purchase a condo with a USDA loan?

Before getting a reverse mortgage, ask your lender about:

  • how you can get the money from a reverse mortgage
  • if there are any fees you have to pay
  • what interest rate you have to pay on the money you borrow
  • what can cause you to default on the loan
  • any penalties you have to pay if you sell your home within a certain period of time
  • how much time you have to pay off the loans balance if you move
  • how much time your estate has to pay off the loans balance if you die
  • what happens if it takes your estate longer than the stated period to fully repay the loan when you die
  • what happens if the amount of the loan ends up being higher than your homes value when it’s time to pay the loan back

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Can You Get A Reverse Mortgage On A Condo

  • Eligible senior homeowners can get a reverse mortgage on a condo. However, certain conditions have to be met first.
  • On top of satisfying HUD reverse mortgage requirements, borrowers must also own and live in a FHA-approved condo.
  • An appraisal will have to be completed in order to determine if a condominium unit qualifies for a reverse mortgage.
  • Updates to the reverse mortgage guidelines regarding condos include spot approval, mixed-use projects, occupancy rations, and insurance maximums.

If you are eligible for a reverse mortgage, you may be able to obtain one on a condominium unit depending on certain rules and restrictions. Reverse mortgages allow seniors age 62 years and up to tap into a portion of their home equity and convert loan proceeds into disposable income during retirement. Because of the way that reverse mortgages work, there are specific rules that pertain to the types of properties that are eligible for this government-backed program.

Also known as a home equity conversion mortgage , reverse mortgage loans are insured by the Federal Housing Administration and overseen by the Department of Housing and Urban Development . Until recently, it was difficult to get a reverse mortgage on a condo but, fortunately for senior homeowners, the guidelines have changed. Thanks to the revised policy that went into effect on October 15, 2019, it is now substantially easier to get approved for an FHA condo loan once the revised policy goes into effect on .

How Does The Hoa Affect Condo Buyers

Lenders have been wary of condo loans since the whole mortgage breakdown. There is added risk for the mortgage lender with a condo because the homeowners association introduces an added level of variability and potential risk beyond your personal finances. In other words, they arent worried just about you as a condo owner defaulting on the loan. They are worried that the other condo owners in your building will stop paying their homeowners association dues. These monthly fees pay for upkeep to the building, shared amenities, and common areas beyond your unit. If other owners fall behind on the, its possible that problems arise with the building that are neglected and never repaired. That makes the value of each unit plummet kind of like what happened in 2008 during the mortgage meltdown.

Townhouse owners arent as beholden to the other unit owners, which is part of the reason these home loans are easier to get.

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Condo Loans: Defined And Explained

A condominium, or condo, is one of the most popular forms of residence, especially among working professionals located in urban areas and young couples embracing the joy of first-time homeownership. But while they are a frequent choice for new and veteran homeowners and appear to function similarly to apartments at a glance, it also bears reminding that there are many key differences for prospective condo loan applicants to be aware of.

What To Know About Buying A Condo

Can You Purchase A Condo With A USDA Loan?

Theres a new condo project with a swimming pool, tennis courts and a communal clubhouse thats caught your eye. Between these amenities and the idea of never having to worry about shoveling snow or raking leaves, youre ready to sign up and move in tomorrow.

Before you go forwarding your mail to the new address, there are just a few things you should know about buying a brand-new condo.

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First Time Condo Buyer: 7 Things You Need To Know

How to determine if condo living is a good fit for you

How to compare the unique costs of condos versus single-family homes

What financing options are available to first-time condo buyers

The perks of living in a condo can be majorly appealingthese homes offer more affordable purchase prices, unique amenities, and fewer weekend maintenance projects when compared to single-family homes. But is buying a condo the right call for you?

Check out our first time condo buyer guide so you know what to consider, what your mortgage options are, and how to get started.

Is A Condo Right For You

Youll need to consider whether your lifestyle aligns with the condos rules and regulations.

For instance, if you have a pet, play musical instruments, and have plans to customize your home, then youll need to check whether the homeowners association will allow it.

But if you dont mind following association rules, paying monthly dues, and living in close proximity to your neighbors, then owning a condo could be a good option for you.

When shopping around for mortgage lenders, youll want to consider factors like rates, fees, and loan products. Credible makes comparing multiple lenders quick and easy you can see your prequalified rates from our partner lenders in the table below in just three minutes.

Kim Porter is an expert in credit, mortgages, student loans, and debt management. She has been featured in U.S. News & World Report,, Bankrate, Credit Karma, and more.

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How Does A Condo Mortgage Work

You can use the same loan programs for condos that you would use to buy a single-family house. There are some key differences, however, in how lenders look at the two types of properties.

In addition to vetting your finances, mortgage lenders evaluate the financial health of the condo association as well. Your lender will send the condo community a questionnaire that covers things like:

  • How many units are in the community?
  • How many units have been purchased?
  • How many units are owned by investors?
  • What amenities does the condo community have?
  • Is the condo association involved in any lawsuits?
  • How many unit owners are delinquent on dues?
  • Are any special assessments coming soon?

All of these questions help determine if a condo project is warrantable and whether the buyer will run into unforeseen costs that will put the loan at risk. For example, if the association decides to allow more investors to be involved in your building, buyers may have a harder time getting financing because traditional mortgage programs have stricter limitations on the percentage of properties in a condo building that can be non-owner-occupied. This may reduce the pool of prospective buyers in the future, making it harder to sell.

Thats the big thing that you need to look at when buying a condo, Ade said. You need to find out how much money they have on hand. Have they been saving up enough money to do all the repairs?

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