Condominiums can be attractive properties for a variety of buyers, from retirees to young couples, although it can be a difficult task to obtain a mortgage on a condominium. During the housing crisis, lenders took some of their biggest hits on condominium mortgages. Condo loans are considered riskier than traditional home loans, yet this can often have little to do with the borrowers themselves. Lenders must look at the financial stability of the entire building, rather than just that of the individual borrower. Of course as a borrower, you must still meet certain credit and income requirements, just as if you were buying a house. At New Horizon Mortgage, we understand the challenges associated with condominium mortgages and we work closely with our clients to make condo ownership possible.
Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) have a number of requirements that a condo association must meet. In order to obtain the best possible rates and fees, you will want to look for a building that is already approved by these entities. Below are some of the standard requirements that a condo must meet to be approved.
- At least 51% of the units must be owner-occupied.
- No more than 10% of the units can be owned by a single investor.
- 10% or more of association dues are deposited in reserves.
- Less than 15% of owners are delinquent on association dues.
- No more than 25% of the building’s square footage is commercial space.
- The property is adequately insured.
- No current or pending litigation against the HOA.
While this list of requirements may seem a bit strict, they are designed to protect both lenders and borrowers alike. If a condominium is not approved by Fannie Mae, Freddie Mac, or the FHA, borrowers are left with fewer options for financing. Conventional financing options can often include higher down payment requirements, costs, and interest rates. After the housing crisis, down payment requirements reached 50% and higher, and interest rates were significantly greater. These requirements have decreased substantially as of late, and condominium mortgages are again comparable to typical home loans.
Condo loans backed by the FHA or eligible for purchase by Fannie Mae and Freddie Mac will also have similar requirements to a typical home loan. Borrowers will need to meet certain credit, debt-to-income, and down payment requirements depending on the type of loan they are seeking.
Whether you are looking to purchase a condo in Austin, Round Rock, or here in San Antonio, New Horizon Mortgage can help you determine which loan program is best for you. We have specialized in condo loans throughout Texas for over 20 years. For more information on condo loans or to begin the application process, contact one of our experienced staff today!