Can you Get a Mortgage on A Condo Purchase?

Can you Get a Mortgage on A Condo Purchase

If you are planning to buy an apartment or condo then you will be happy to know that you can get a mortgage on an apartment or condo purchase. However, you should keep in mind that it is not easy to get a mortgage for a condo purchase. In fact, getting a mortgage for an apartment purchase is much harder than buying a house. Lander considers this type of investment a riskier investment. Therefore, you must have an excellent credit score and the ability to make a large down payment to qualify for a condo mortgage.

What is a Condo?     

A Condo or condominium is a building structure that is in most cases a privately-owned individual unit within a multiple-unit property. Usually, a condo includes a gym, pool, spa, business center, and other modern facilities. When you buy a condo, you have to pay a monthly fee which is collected by the condo association. The condo association usually takes care of all exterior and common area maintenance.

Advantages and Disadvantages of Buying a Condo?

There are some key advantages and disadvantages of buying a condo. You should check the pros and cons before starting shopping for a condo –

Advantages of Buying a Condo

  • Buying a condo is more affordable and cheaper than buying a house. According to the National Association of Realtors, the maiden price of a condo is $272,200 while the maiden price of a single-family home is $314,300.
  • When you buy a condo, you will have access to shared amenities to socialize with your neighbors.
  • Almost all condo associations hire security guards to provide better security which means you will have a safer neighborhood.

Disadvantages of Buying a Condo

  • When you buy a house, you have to pay the HOA fees. You should keep in mind that the HOA fees can range from a hundred dollars to more than a thousand dollars.
  • There might be additional restrictions compared to owning a house. For example, the condo association might set its own covenants and restrictions that you have to follow.
  • Selling a Condo is a bit harder compared to selling a house. This is because not everyone is capable of living in a condominium.

How does a Mortgage for a Condo Work?

When you are buying a condo you can apply for the same type of mortgage that you will need to buy a house. However, when you apply for a mortgage to buy a condo, the lender will look different from your loan application. The lender will check your financial background as well as evaluate the condo association’s financial health. The lender will consider the following:

  1. Number of units purchased
  2. Number of units owned by investors
  3. Amenities
  4. Lawsuits that involve the condo association
  5. Number of unit owners delinquent on dues
  6. Upcoming special assessments
Can you Get a Mortgage on A Condo Purchase
Image Source: condo .capital

You might find it a bit harder to get a suitable mortgage for your condo because the traditional mortgages restrict the percentage of units of a condo that could be non-owner-occupied. Therefore, you have to find a lender who has previous experience in offering condo mortgages.

Types of Condo Mortgages

There are several types of condo mortgages. They are –

  • Conventional loans
  • FHA loans
  • VA loans
  • USDA loans

1. Conventional Loans

If you have a minimum credit score of 620 then you can qualify for this type of mortgage to buy a condo. The best part of this mortgage type is you only have to pay a 3% down payment instead of 20%. Moreover, you will have cancelable mortgage insurance. However, this type of mortgage is set by government-sponsored entities Fannie Mae and Freddie Mac, so the condo you are buying should be warrantable.

2. FHA Loans

In order to qualify for the FHA loan must have a credit score of 580 or higher and you have to make at least a 3.5% down payment. However, the condo that you are planning to buy must be approved by the U.S. Department of Housing and Urban Development (HUD).  

3. VA Loans

This type of loan is available for active-duty military members, veterans, and eligible spouses. If you fall in any of the categories then you can qualify for this loan with a 0% down payment. Moreover, you won’t need any mortgage insurance, and there is no limit on the loan amount. Like the FHA loans, VA loans also have an approved condominium list to qualify for the loan.

4. USDA Loans

This type of loan offers a 0% down payment mortgage to rural people who want to buy a condo. The best part of this type of mortgage is there is no credit score requirement however, you have to meet the USDA income limits. Moreover, your current financial condition should be able to support the monthly mortgage payments.

Full Cost of Buying a Condo

Before making a decision of buying a condo, you should have a clear idea about the full costs of owning a condo. You have to consider various types of costs associated with condo buying like condo insurance, association dues, property taxes, mortgage insurance, etc. The below table will provide you with a clear idea of the cost of buying a condo. For example, if you buy a condo worth $250,000 with a 4% interest rate and 10% down payment then the cost would be –

Potential Monthly Cost
Type of CostAmount
Principal and interest$1,074
Mortgage insurance$117
Condo insurance$73
Association dues$200
Property taxes$260

Warrantable Vs. Non-warrantable Condos

It is very important to find out what type of condo you are trying to buy. The two types of condos are warrantable and non-warrantable. If you choose to buy a warrantable condo then you will be able to finance the condo and underwrite using a conventional mortgage. In order to qualify as a warrantable condo, a condo has to fulfill some requirements set by traditional mortgage investors like Freddie Mac and Fannie Mae. Some important requirements are –

  • A single entity won’t be able to own two units in projects that have five to twenty units. If the project consists of 21 units then a single entity is not allowed to own more than 20%.
  • In a project, at least 50% of units are owner-occupied compared to being investment properties
  • Less than 15% of total units are 60 days or more in arrears on association dues
  • The HOA is not named in any lawsuits
  • Commercial space should not consist of more than 35% of the total building square footage.
Image Source: valuepenguin .com

If a condo doesn’t fulfill the above requirements then it is considered as a non-warrantable condo. You should keep in mind that it is a bit difficult to buy and sell non-warrantable condos. This is because Freddie Mac and Fannie Mae have marked these types of condos as a risky assets. Moreover, it is also difficult to find a suitable mortgage for a non-warrantable condo. It means you have to seek outside financial assistance to buy a non-warrantable condo.

How to get a Condo Mortgage

In order to get a condo mortgage, you have to ensure that the condo meets the lender’s guidelines and your financial situation. Jeffrey Loyd, principal of Mortgage Acuity says –

“Make sure you are looking to purchase in a well-run, financially healthy condo association that is predominantly filled with owner-occupants, the borrower must pay for documents needed from the condo managing agent, such as the condo questionnaire, condo financial statements, and insurance binder for the building as a whole. That could set you back a couple of hundred dollars at closing time. Also, because there are additional participants involved in the loan process — such as the condo association and its insurance company — expect longer closing times, often 30 days or more.”

Moreover, you have to make sure, your credit score is good enough to help you get a good mortgage deal. If you can make a 5% – 10% down payment then you will be able to get a good mortgage with a lower interest rate. You should keep in mind that the more you can make a down payment the greater you will be able to save in mortgage interest and your monthly mortgage payment will be lower.

FAQs about Can you Get a Mortgage on A Condo Purchase

Do condos appreciate in value?

Yes, condos do appreciate in value. However, you should keep in mind that the appreciation rate of condos is a bit lower compared to houses.

What is a good credit score to buy a condo?

According to many financial experts, having a credit score of 580 or above is ideal for buying a condo. If your credit score is above 580 and if you can make at least a 3.5% down payment then you could qualify for an FHA-insured condo mortgage.

What is the best down payment for a condo?

The best down payment for a condo is 20%. If you can make a 20% down payment then you can get a mortgage at the lowest possible interest rate and monthly payment. However, depending on your financial condition, it will also be better for you if you can make at least a 5% or 10% down payment.

Why is it hard to finance a condo?

There are many reasons it is hard to find a suitable mortgage for a condo. One main reason is, a condo unit is a part of a multi-unit development therefore when you are buying a condo, your finance is intertwined with others. This is why lenders find it risky to invest in a condo and don’t want to finance a condo.


Last Updated on August 7, 2022 by Ana S. Sutterfield

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