On January 1, 2022, Conventional Financing will be changing with respect to financing of Condominiums. The change applies to all Conventional loans across the board, regardless of the lender, bank or credit union offering this type of financing.
You see, Condominiums are a unique property type when it comes to mortgage financing. Unlike other property types (such as single family homes, townhomes, villas, and multi-family homes), when you apply for loan approval for a Condominium, you must qualify for the loan yourself AND the Condominium itself must qualify for the loan as well.
The lender will be inspecting the Condominium to see several factors such as:
With the Limited Review, the process is fairly simple and straight-forward. The Condominium completes a short questionnaire for the lender. Based on the answers provided, the lender compares the answers to the loan program guidelines to determine if the Condominium meets eligibility criteria. If it meets all criteria, then the Condo is approved!
With the Full Review, the process is more involved. With the Full Review, the Condominium supplies all pertinent documentation to the lender for review. This includes the budget, meeting minutes, full insurance policies, any pending litigation, and a full list the occupancy details, and more. There are no shortcuts in the process. It’s designed to be a comprehensive and rigorous approval process to uncover any potential active problems or problems on the horizon for the prospective homeowner. If the Condominium can pass this review, then it is approved!
A Limited review can be just a few pages, whereas a Full Review can be 100’s or even 1,000’s of pages for the lender to review.
Even though all of these property types have a homeowners/condo association in common, the similarity ends there. A Condominium is different from a townhome or villa, primarily because of the homeowner does not own the dirt under the unit with a Condominium. Condominiums are also different than Condo-Hotels (aka – Condotels). The primary difference between a Condominium and a Condotel is that the Condotel has short-term rentals and amenities built into the project, such as a concierge desk, rental desk, boat-slip management, and other resort-like amenities. Condotels are not eligible for Conventional financing, regardless of how well-run they may be.
Ultimately, the difference between Condominiums, Condotels, Townhomes and Villas comes down to the Legal Description of the property. Here in Florida, visually spotting the difference can be tricky. The large Condo Towers are easy to spot; however there are many homes that look exactly like townhomes, but in fact, turn out to be Condominiums once the home’s legal description is inspected. Regardless of how it looks on the outside, the legal description is the final word.
If it’s a Condominium, townhome or villa, it may be eligible for Conventional Financing. If it’s a Condotel, it is not eligible for Conventional financing. For Condotel financing, we offer several financing options such as our Private Client Portfolio Program, Flex Mortgage Program, Bank Statement Loan for Self-employed business owners or our 1099 Income Program for Independent contractors. (These same programs can also be used to buy a Condominium that is not passing a Full Review and you still wish to buy the Condo)
THERE ARE 2 MAJOR CHANGES:
The new changes only apply to Condominiums. If you’re trying to finance a Condominium, the Condominium must now pass the Full Review Process, regardless of the buyer’s down payment or COMBO Loan/HELOC financing.
It could potentially increase buyer costs, since the cost to review the Condo went up dramatically for both the Condominium and the lender.
It could also lead to more loan denials, even if the applicant is extremely well-qualified. Remember, both the applicant AND the Condominium must be approved during the process.
If you’re buying a Condotel, or you’re buying a Condominium that isn’t passing the Full Review, we may be able to help.
We have several great loan program options that still offer the limited review, including:
Remember Conventional loans are great—we offer Conventional loans, too! But they are NOT your only option. There are plenty of great options available and we can help you determine which is the best solution for you.
If you’re buying a Condominium or Condotel here in the Sunshine State, we’d love the opportunity to discuss all of your options and answer your questions, and let you buy your next home with confidence!