For buyers attracted to low-maintenance condo living, securing financing comes with unique qualification conditions beyond the traditional home mortgage. By understanding key eligibility factors across loan types, buyers can strategically plan their application for approval. Let's unpack top considerations lenders weigh.
How to Qualify for a Condo Mortgage Loan?
If you need financing for a condo, there's loan programs available that will likely have the terms you want within reason. Types of condos that can be financed through our network of licensed mortgage consultants are:
- Low rise condos
- High rise condo buildings (more than 8 floors)
- Single-story attached condos
- Non-warrantable condos
- Condo-tels
- Mixed-use properties (residential and commercial/retail)
from $200,000 and up
Condo Down Payments Vary by the Type of Loan
The down payment represents the buyer's upfront investment in purchasing the condo. Popular government-backed loans through FHA, VA, and USDA allow much lower down payments than conventional loans. For example, FHA requires as little as 3.5% down payment while VA and USDA offer 0% down programs for qualified applicants like veterans and condos in designated rural areas. However, the remarkably low down payment for FHA loans does require paying mortgage insurance premium with 3.5% down on up to a 19% down payment.
Alternatively, conventional loans offered through most lenders requires 5-10% down payment for qualified buyers who are able to meet stringent credit and income criteria. The higher down payment brings better interest rates because there's less risk to the lender. Review the chart below for example of a buying a condo in California.
| 30-year Fixed Loan Type | Conventional | FHA | VA | USDA | ||
|---|---|---|---|---|---|---|
| Loan Assumptions: The above scenario is for a borrower with a 720 credit score with qualifying income, employment and debt to income ratios buying a fannie mae, FHA, or VA approved condo. Not all borrowers will be approved. Eligibility guidelines are from Fannie Mae. | ||||||
| Purchase Price: | $500,000 | $500,000 | $500,000 | $500,000 | ||
| Required Down Payment: | $25,000 | $17,500 | $0 | $0 | ||
| Loan amount: | $475,000 | $482,500 | $500,000 | $500,000 | ||
| Monthly Principal & Interest at 6.50%: | $3,002 | $3,103 | $3,228 | $3,228 | ||
| Mortgage insurance: | $350 | $220 | $0 | $147 | ||
Credit guidelines
Similar to buying a detached home, borrowers must maintain minimum credit scores varying by loan product from 580-800+. Those with 740+ FICO scores typically qualify for the best available interest rates. FHA loans will allow credit scores below 620, down to as low as 580 but a 10% down payment will be required. Conventional, VA, and USDA require 620 and above middle credit scores. Even when lenders say they'll approve it below 620, there's credit overlay guidelines that may deny the loan.
Condo Project HOA Documents
In addition to reviewing an individual borrower's finances, condo lenders also extensively vet the status of the condo complex itself before approving mortgages. Key aspects scrutinized include:
- - Owner occupancy ratios
- - Reserve fund health
- - Recent litigation issues
- - Overall financial stability
Acceptable Condo Status for Conventional & Govt. Loans
The accepted checklist is extensive and has periodic changes but for the most part what's listed below been the rule for decades. Learn more about it on Fannie Mae's condo guide.
- A condo project has an extremely high chance of lender approval if:
- - The project is 100% completed
- - The HOA is free of any lawsuits
- - The owner-occupancy ratio is more than 50%
- - Sufficient amount of reserves for maintenance
- - The HOA restricts rental terms to 30 days or more
- - The project doesn't have fractional ownership or timeshares
- - The project is fully controlled by an HOA or owners
- - No person or entity owns 10% or more of the units
- - The building passes appraisal and physical inspections
- - Any commercial space in the building is less than 25% of the total space
No Junk fees!
$0 Application fee
$0 Loan processing
Advantages & Disadvantages of Owning a Condo
Benefits
- No Yard Maintenance. Unlike homes, the HOA usually doesn't restrict owners from listing their condo on sites like Airbnb or VRBO to take full advantage of short-term rental demand. We’re talking potential profits of $54K-$66K a year if you net $150-$200 a night and have strong demand. That's not too shabby of extra income for a condo that would only fetch $2,000 per month ($24K annually) if it were warrantable. The difference is more than 50% for a condo that isn't warrantable.
- Property Amenities. Additional benefits for owners or residents of a luxury condo building classified as not warrantable are amenities that are similar to a resort. Examples are state of the art fitness centers, small retail shops or restaurants, and commercial space covering more than 25-percent of the property.
Disadvantages
- Less Privacy. Opting to own a non-warrantable means less financing options, lack of low down payment programs, higher interest rates, and selling in the future to someone who wants to use a VA, FHA or conforming loan is out of the question. But for many buyers in resort areas and vacation spots, the location and added income outweighs the cons and still makes it all worthwhile.
- Shared common walls. Although most condos are built with better sound-proofing those that are converted from an apartment building may feel similar to a regular apartment. However, luxury condo buildings tend to spare few expenses and build them for the comfort of the new owners.
FAQs
See answers to questions borrowers also ask about condos
Are the conforming loan limits on condos different from a house?
No. The conforming loan limit for a condo is $766,550 which is the same as a detached home. Units above that amount fall into jumbo loan territory with different guidelines unless they are located in high-cost counties like Los Angeles, Orange County, Ventura, San Francisco Bay area and others.
What percentage of units need to be owner-occupied?
Lenders often require at least 50% of the units to be occupied by the owner. A higher percentage is better to avoid risks of an excessive "investor-owned" condo complex which becomes classified as "non-warrantable".
How many units need to be sold in a new construction condo?
For new buildings, most lenders want to see at least 50% of the units sold or under contract before considering offering a mortgage.
What repairs are done by the HOA and by the owner?
Anything inside your walls is the owners responsibility such as appliances, flooring, fixtures, etc. Common areas belong to HOAs, like roofs, siding, lobby, pool and outdoor space.
Does condo insurance replace homeowners insurance?
No. You still need an HO-6 condo insurance policy to cover your possessions and liability. Associations have blanket policies, but they only repair structure and common areas.
What are the main problems with condos in general?
The HOA fees are what most complain about. All condo owners have to budget for homeowners association fees that cover building maintenance, repairs, improvements and amenities. Those monthly or quarterly fees definitely eat into your potential rental income if it’s an investment property.
Make sure you understand what's covered from your monthly dues and the rules about rate increases before buying. In many cases the HOA fees cover items that you would pay for in a home anyway such as lawn, trash, pool, and roof maintenance, internet and business center fees. In many cases, there’s also a fitness center and if it’s a luxury property, access to golf or tennis and even 24-hour security is likely. HOA fees are not always being paid for little in return.
1. View the disclosure disclaimer regarding loan approval, loan product availability and qualifying for a loan. Not All borrowers will qualify.