Condo Loans: 7 Ways Getting One Is Harder Than Getting a Mortgage on a House
Lenders find condos riskier than other residential properties because they have to worry common areas, homeowners’ association and other unit owners, in addition to the condo unit buyer and their unit.
Would-Be Borrower Bob Looks for a Park Ridge, IL Mortgage Broker
Let’s say borrower Bob wants to buy a condo in Uptown Park Ridge. He looks for a mortgage broker in Park Ridge, Niles or Des Plaines. No matter which one he chooses, his mortgage broker, to give him the best rate, will want to get him a conventional, conforming loan (FHA loans, though they have lower interest rates, come with mortgage insurance. That makes them more expensive than conforming loans.)
He ends up choosing to work with a loan officer in Niles.
If you’re looking for a loan officer in Illinois, call me at 847-840-8884 now.
The First Thing Bob’s Niles Loan Officer Tells Bob
The first thing to keep in mind is that it is a lot harder to get an FHA condo approval than a conventional, conforming one: the FHA will only insure condo mortgages if the unit is part of an approved project or if someone spot-approves the unit (takes time, effort, and can cost money too) and their approval project is harder and it costs money to remain approved, so few projects stay approved.
This is the link to check if a condo project is approved by the FHA: https://entp.hud.gov/idapp/html/condl….
So, the first thing people who’re looking to buy or refinance a condo unit is to determine whether they qualify for a conforming conventional loan or not.
Or if the mortgage broker or lender they’re working with can do unwarrantable condos, i.e., condos that don’t fit the criteria of Fannie Mae, Freddie Mac or FHA.)
Unwarrantable condo mortgage loan programs have looser qualifying criteria but they still have qualifying criteria.
Want a condo mortgage? Call 847-840-8884 to see if the condo association meets the criteria of any lender.
The Most Common Traps on the Way to Bob Getting a Mortgage on His Park Ridge Condo
Though the complete criteria takes up several pages, most condo projects that don’t comply with Fannie Mae, Freddie Mac and the FHA’s programs do so because they don’t meet one of the following 7 requirements:
1. Budgets must call for an amount equal or higher than 10% of the association’s budget to be transferred into the reserves account a year.
2. No entity can own more than
A) 1 unit in projects with 4 units or less;
B) 2 units in projects with 5-20 units;
C) 10% of the units in projects larger than 21 units.
3. All of the association’s income must come from things that are essential to running an association (i.e., regular or special assessments and maybe from cable fees; none can be from a business the association is running, or rents).
4. No more than 25% of the project can be commercial in nature.
5. The developer must have turned over control to the association.
6. The association cannot be involved in a litigation that’s not about foreclosure if there are monetary motivations at play.
7. 51% of the units must be owner-occupied (units listed for sale are considered owner-occupied)..
There are many other restrictions, but associations not meeting them are rather rare.Still, people who are thinking about getting a mortgage on a condo should talk to a loan officer early in the process.
Call 847-840-8884 now to talk about the condo unit you want to finance.
What Borrower Bob Should Do To Get His Park Ridge Condo Mortgage The Easy Way
The documents that reveal whether the condo project meets or does not meet the requirements for conforming conventional or FHA loans are:
3. Condo Rules and Regulations
4. Articles of incorporation.
Borrower Bob (or anyone else thinking about getting a mortgage on a condo) should, at the very least, ask the person in charge of running the association questions that would reveal if the project meets the criteria listed above and get a copy of the budget and provide it, together with the answers from the person in charge of the association, to his loan officer.
The earlier Bob’s loan officer has the required condo information, the better.
Condo Loans the Easy Way
Lenders don’t always look that carefully at condo documents. It depends on how strong of a borrower they’re dealing with.
Still, even limited condo reviews involve budgets and a questionnaire that someone at the association (or association management) must fill out. And, the appraiser also comments on some of the items above.
So, even for strong borrowers, the best idea is to know the information early.
What If Borrower Bob Wanted to Refinance a Condo, Not Buy One?
The same applies, of course. And, if Bob’s condo association does not pass the test, Bob has the following options:
- deal with a lender that does non-warrantable condos
- get the association to comply with the rules
- apply with a regular lender, and hope they don’t catch on.
Non-Warrantable Condo Lenders
They are lenders who are more relaxed about one or more of the rules that Fannie, Freddie and the FHA abide by.
The thing to keep in mind is this: your loan officer must be dealing with one that is relaxed about the particular rule the condo association you’re interested in breaks. And relaxed enough.
This is what I mean:
Some non-warrantable condo lenders can stomach associations that have 40% commercial space, while others can only stomach 35%.
Some non-warrantable condo lenders are relaxed about the occupancy rule, but they are just as strict with the other aspects of condo associations as the warrantable condo lenders.
Call 847-840-8884 if you think you’re dealing with a non-warrantable condo.