By Sabrina Karl
Condominiums are a popular housing choice among young singles and couples, as well as empty nesters and older retirees ready to downsize both their square footage and their responsibilities for home and yard maintenance. But what about financing a condo? Are condo mortgages special? Is it harder to qualify for a condo loan?
The good news is that almost all common mortgages (e.g., conventional, FHA, VA, etc.) can be used for a condo. Further good news is that your borrower requirements are essentially the same whether you’re buying a single-family home or a condo. The lender’s review of your credit, tax returns, income and assets, and debt levels will look for the same things no matter which type of primary residence you’re financing.
Where things differ with condos is that the lender’s willingness to approve your loan will include a substantial review of the overall condo property. First and foremost, they’ll carefully assess the financial health of the condo association, looking at how much money the association holds in reserve to cover future maintenance and emergencies. They’ll also review what percentage of the units are up-to-date on their monthly HOA (homeowners’ association) dues, with conventional mortgages requiring that no more than 15% of the units are delinquent.
The lender will also evaluate the percentage of owner-occupied vs. rented units, with conventional mortgages requiring that half or more of the units are owner-occupied. Finally, they’ll typically check that the amount of common, non-residential space (e.g., fitness, pool, and laundry spaces) doesn’t exceed certain allowances.
As a potential condo buyer, it’s your responsibility to make sure you understand the HOA dues obligations, as they’ll be required on top of your monthly mortgage payment. It’s also wise to check if there is any pending legal action against the condo developer or association.