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Derek Bissen, May 25 2022

CONDOMINIUMS – Everything You Need to Know About Mortgage Financing for Condos

Condos are hot here in Florida. But did you know, they can have special financing requirements?  We’re about to cover everything you need to know about Condominium financing and what you need to know about qualifying for a mortgage for this type of home.

We'll cover these three topics:

SO WHAT MAKES A CONDOMINIUM SO DIFFERENT?

Unlike a single-family home or multi-family home, a Condominium is a unique form of homeownership in which the interior space of the home is individually owned, while the exterior of the building and the land is owned collectively with the other unit homeowners.

Financing a Condominium works the same way as any other home loan, but there are a couple extra steps.  As you might imagine, you still need to qualify for the loan in the same way you would for any other type of home, but with a Condo, there are TWO extra steps:

STEP 1: CONDOMINIUM MEMBERSHIP: 

When you go under contract on the home, you have to apply for membership with the Condominium.  The Condominium itself can ask all sorts of things, including:

The bottom line is, if you intend on joining their community by purchasing a condominium unit, you must abide by their admission rules.

STEP 2: LENDER APPROVAL OF THE CONDOMINIUM

The Condominium itself also must qualify for the new loan as well. Because the condominium is the collateral for your new loan and because the exterior of your home is maintained by the community, it means that the lender has the right to inspect the financial fitness of the condominium. Once you’re under contract, the lender reaches out to the condominium and has them produce a list of items needed for loan qualification. 

This can include:

Once the lender has reviewed all required items, the decision is made on whether the Condominium passes or fails the qualification for your new loan.

CONDO QUALIFICATION STANDARDS ARE NOT UNIVERSAL, AND MAY VARY

THE 3 DIFFERENT TYPES OF CONDOMINIUMS

1. Condominium

This is a standard condominium.  It can be one story, two story, a 30 story tower---it can have a parking lot ora parking garage…but no matter how it looks on the outside, the legal description defines it as a condominium.  It will have a Condominium Association and sometimes a Property Management Company to run the day-to-day affairs. They will have their own community bylaws. A well-run condo will set community limits on the number of investment units, limits on single-entity ownership, maintain sufficient insurance coverage at all times, and have at least 10% in reserves in their budget.  

A well-run condominium will usually qualify for Conventional loan standards set by Fannie Mae and Freddie Mac, provided they meet the required criteria; but they can also be approved by FHA, VA, and other loan program types as well such as our Flex Mortgage Program or our Private Client Portfolio Program.

2. Non-Warrantable Condominium

A non-warrantable condominium looks just a like a standard condominium, except that the association fails to meet one of more of the criteria required by Fannie Mae and Freddie Mac. 

Some of the most common reasons why a condo would fail a standard condominium review are:

But there can also be many other reasons why a condominium can fail the review.  If your condominium fails a review, your lender can explain the reasons and provide alternative solutions.  Many times condominiums require an a lender that is experienced and has a wide variety of loan programs to suit multiple scenarios. IF YOU ARE BUYING A CONDOMINIUM IN FLORIDA AND YOUR CONDO IS DENIED, we'd be delighted to review your scenario and offer you some solutions.  You can CONTACT US HERE!  

YOU CAN STILL GET A MORTGAGE FOR A NON-WARRANTABLE CONDOMINIUM, but it will require a specialized loan program, not a Conventional loan program, FHA, or VA loan program. (we’ll cover these in a moment)

3. Condotel

A Condotel is a type of Non-warrantable Condominium designed primarily around INVESTMENT/ RENTAL INCOME PURPOSES. The name comes from the combination of “Condo” and “Hotel”.   From the outside, they may look exactly like a standard garden-variety Condo, but in reality, they a type of non-warrantable Condo that’s operating like an income-generating resort. 

The down payment requirements and the interest rates are higher for condotels vs standard condominiums, so make that you’re keeping a close eye on this during your home search to maximize your efforts.  

LUCKILY, THERE A FEW EASY RED FLAGS TO HELP YOU IDENTIFY IF A CONDO IS A CONDOTEL: 

THE MAJOR TYPES OF MORTGAGE FINANCING YOU NEED TO KNOW FOR CONDOMINIUMS

So if you're wondering, what type of mortgage do I need for a condominium?  Here’s a handy grid to help explain the type of mortgage that you can use with each condominium type. Each loan program is linked to linked to a loan program description so you can learn more.

If you are looking to purchase a condominium, non-warrantable condominium or a condotel anywhere in the state of Florida, we'd love to discuss your scenario and provide you with solutions--and the experience to get you to the closing table!  CONTACT US HERE TODAY!

MORTGAGE FINANCING OPTIONS BY CONDOMINIUM TYPE:

1. CONDOMINIUM

Standard Condominiums--especially if they meet standard approval criteria for Conventional loans--offer the widest variety of mortgage loan options.  Conventional Home Loans are the most common choice for standard condominiums, but there are plenty of others to choose from. 

Click any loan program to learn more.

2. NON-WARRANTABLE CONDOMINIUM

Non-Warrantable Condominiums have a more limited choice of mortgage loan options.  You can expect a larger down payment than a Conventional, FHA or VA loan.  Consult your Loan Originator for details.

3. CONDOTEL

Condotels offer the smallest array of mortgage loan options.  Because Condotels are generally riskier in nature to the lender, the majority of banks and credit unions here in the state of Florida do not offer financing options for Condotels.  We specialize in this type of financing, and offer flexible terms for well-qualified applicants. 

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Written by

Derek Bissen

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