Are you looking to buy an affordable home in an appealing area? A condo might be the perfect solution. Not only will you gain access to extra amenities and communal spaces, but also you won’t have to worry about many common maintenance chores, including yard work. If you would like to call a condo home, you’ll need to take a little time to explore how to get a loan for a condo. Though it’s not a complicated process, it is a little more complex than buying a single-family home.
How to Get a Loan for a Condo
Whether you’re getting a loan for a condo or a single-family home, the basic process for a borrower is the same: You choose a lender and apply for a loan. As Money Under 30 points out, the differences arise in how the lender assesses the property. The underwriting for a condo is more complex because of the condo unit’s connections to the overall condominium project of which it’s a part. Understanding common lender concerns and the specific requirements of different loan programs will help you locate the ideal condo and find the right loan for your needs.
Loan Requirements for Condos
As MillionAcres indicates, there are some condo-specific concerns that lenders tend to weigh before deciding to approve a condo loan:
- The Condo Association: Ideally, the condo association will be in good financial shape, have adequate insurance, and have a good success rate when it comes to collecting its dues. Lenders also prefer that there be no legal actions against the association.
- The Occupancy Rate: Lenders tend to view condo projects where most of the units are owner-occupied more favorably.
- The Mix of Residential and Commercial: Lenders are generally hesitant to offer loans for condos in projects that combine residential and commercial spaces. The presence of timeshare units can also torpedo your chances of getting a condo loan.
Loan Requirements for Condos
When considering how to get a loan for a condo, it’s a good idea to look at how different loan programs approach mortgages for condos. U.S. News & World Reports offers a quick breakdown of the main points:
- Conventional Condo Loans: Conventional loans are loans without government backing. Made by private lenders, they meet the underwriting guidelines set by Fannie Mae or Freddie Mac. For borrowers purchasing a condo, that means that at least 50 percent of the condo project’s units must be owner-occupied as either primary residences or second homes. In addition, at least 10 percent of the condo project’s budget must be held back for maintenance, and no more than 15 percent of the units can be behind in their condo association dues by 60 days or more.
- FHA Condo Loans: Loans from the Federal Housing Administration’s (FHA’s) home loan program are a popular pick with people who want to make a small down payment. Qualified buyers can put down as little as 3.5 percent. However, condo buyers must choose an FHA-approved condo that will serve as their primary residence. At least 50 percent of the project’s units must be occupied by their owners, and no more than half of the units can be FHA-insured. Finally, nonresidential spaces must comprise less than 35 percent of the condo project’s total floor area.
- VA Condo Loans: With relaxed credit requirements, 100-percent financing, and competitive interest rates, loans from the U.S. Department of Veterans Affairs’ (VA’s) home loan program can be fantastic tools for qualified buyers. When used to purchase a condo, the property must be in a VA-approved project. The condo association must provide three years of financial records and set aside at least 20 percent of its budget for maintenance. Condo owners must occupy at least 35 percent of the units, and 10 percent or less of the units can be behind in their condo association dues by 60 days or more.
- USDA Condo Loans: The U.S. Department of Agriculture’s (USDA’s) home loan program can be used to finance the purchase of a condo in many rural and suburban areas. The condo project must be approved by the USDA, structurally sound, and have flood insurance if it’s located in a flood plain.
If you’re wondering how to get a loan for a condo, turn to the loan experts at PrimeLending Twin Cities. We offer a wide range of loan products, and we’re happy to help you sort through the possibilities to find the best one for your needs. Contact us today to get started.