Whether you want to avoid the exterior maintenance a single family home requires or simply prefer a compact living space, there are many reasons to consider a condominium when buying real estate. When the housing bubble burst and property prices fell, condo units were among those that fell the furthest—and they’re recovering at a slower pace than their single family neighbors in many parts of the country. While this may be bad news for those who bought at the height of the market, it is great news for anyone considering a purchase today—if you can get financing.
Before approving a condominium mortgage, a lender must scrutinize the complex and association in addition to the buyer’s finances and credit history. This can make the transaction more difficult than that of a single-family property purchase.
For example, a lender that is considering financing a condominium will require the association to provide information on the number of owner-occupied and bank-owned units. Lenders also request data on association reserve levels and the percentage of homeowners behind on payment of HOA fees. If any of these details fail to meet their loan approval requirements, they may deny your mortgage application.
Insurance is also important. Lenders require condominium associations to have enough property and casualty insurance to cover risks according to the lender’s guidelines. If the association needs to increase their coverage, it can delay your loan approval. If the lender requires an increase and the association refuses, they will deny your mortgage application.
FHA loans require an additional step for conventional financing of a condo unit. Fannie Mae or Freddie Mac must approve the condominium building or complex for financing. If the property you wish to purchase has not already been approved, the process required for doing so can delay the approval of your mortgage.
While condominium financing may present additional challenges, it is not impossible. You should prepare yourself for a longer application process, but don’t be deterred if you’ve determined a condo property is right for you.