What you need to know when financing a condo
You’re ready to buy your luxury condo, but first your loan needs to get in order.
Is there anything special to know when financing a condo? The answer is yes.
Chris Viviano, regional manager at Homeowners Financial Group USA, LLC, said a condo is a different type of homeownership.
“You own your unit within a larger building or community of other condo owners. You jointly own the exterior property and common areas with all owners. A condo unit buyer essentially purchases a percentage of a total project,” Viviano said.
Investopedia.com’s article, Condo Buying Guide: Obtaining a Mortgage, stated that rules for condo loans vary between conventional and FHA loans.
Most importantly, your creditworthiness will be evaluated as well as the physical condition and fiscal health of the entire development where you want to buy.
In addition to these factors, the condo association has to qualify in order for your mortgage to be approved. Guidelines must be followed by lenders from the Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA).
While the loans are the same, the lending process is different from purchasing a single-family home, said Viviano. Down payments are still configured the same, but the property analysis is where the primary difference occurs. The entire condo project is analyzed as well as the unit being purchased, Viviano said.
“Lenders and buyers both should evaluate the financial and governance strength of the condo community. Attention is paid to the homeowners association to ensure that that the HOA maintains sufficient insurance coverages and has adequate budget and reserves for current and future operating expenses,” he said.
Lenders also examine whether or not the building has any pending litigations or special assessments in process that could affect financing for future sale, Viviano said.
“It’s always best for your lender to do an up-front, quick health check with HOA,” he said.
HOA fees will be included the proposed monthly payment and are usually paid monthly to the HOA directly.
“These payments are usually not part of the buyer’s scheduled mortgage payment. Buyers should evaluate what is included in the monthly fee such as utilities, cable, parking or insurance,” Viviano said.
If your desired condo is still under construction, it is also analyzed differently by lenders, Viviano said. With no track record to go by, the percentage of units that are presold is considered.
“Some lenders are more ‘condo friendly’ than others,” he said.