Purchasing a condo that needs financing is not as easy as purchasing a single family home. After the housing crisis, lenders put up roadblocks for condo mortgage approval not only because of defaults, but also due to condo association issues. As the housing market improved, condominium financing in Florida has returned and is possible as long as both the borrower and the condominium meet the requirements.
Financing for condos is available through conventional, FHA and VA loans, although condo guidelines and lender overlays for each one may vary. Getting approved for a condo mortgage is basically the same for the borrower with regards to employment, income and assets. There are some differences involved, such as calculating the debt to income ratio which will include the condominium homeowner’s association fees in addition to normal expenses. The down payment requirement is also higher, but a condo mortgage with a loan to value of 90% is possible.
Because condos include many units, individual owners and a homeowner’s association, they are treated differently than regular loans. A condominium must be approved before any financing will go through for conventional, FHA and VA loans. There are specific eligibility requirements that must be met in order to receive condo approval. For instance, if an investor other than the developer owns more than 10% of the units, the condo is not eligible. On top of that, there are different review guidelines for established condos and new condos. The amount of delinquent assessments, how many units have been sold and the operating budget are just some of the review items that will need to be addressed by the condo management when applying for approval.
Each type of loan has its own rules in regards to the amount of renters vs. owner occupied and the amount of cash reserves that are required to receive approval. Condominium homeowner’s associations must also provide proof of a master insurance policy with adequate liability coverage for the common areas and amenities that are a part of the community. Individual condo owners are required to carry insurance for the interior of the unit and its contents.
When someone is purchasing a condo, whether it is a primary residence, investment or vacation property, this process can be easier if the condominium has already been approved. Fannie Mae, Freddie Mac, FHA and VA all have lists of approved condos that buyers can search before they even look at potential condos for sale. Real estate agents may also have this information available for those who are looking to finance their purchase.
In order to stabilize the housing market, there are some rules that are in effect for a limited amount of time. Until the end of August, 2014, FHA guidelines have been changed as follows: at least half of the total units must have been conveyed or under contract for purchase to owner-occupied residences and no more than 15% of the total units can be more than 60 days past due on homeowner association fee payments.
Someone who is interested in purchasing a condo that needs a mortgage must talk to an experienced mortgage broker who understands condominium financing in Florida. A broker will be able to address any possible concerns about the condo and if it is approved, as well as, have more lending options available to the condo buyer than a bank. Condo financing is a specific niche in the housing market that many lenders do not want to touch.