Are you thinking about purchasing a condominium? While condos have a lot of benefits, the process to get a mortgage to purchase a condo can be confusing and arduous. Condo mortgages are much more complex than a mortgage for a single-family home, because the lender must take the entire condo project into account.
If you are buying a condo, you have a lot to think about regarding a mortgage. So in this article, we focus on the most common types of condo projects, new and established, as we review condo mortgages relating to Freddie Mac requirements.
Overview of Condominium Unit Mortgages
The six main types of condo projects are as follows:
- New Condo Project
- Established Condo Project
- Two to Four Unit Condo Project
- Manufactured Home Project
- Co-op Project
- Planned Unit Development (PUD)
However, the two most common types of condo projects are new and established.
When applying for a mortgage, the lender will review three key aspects relating to the purchase:
- The borrower: They will look at your credit history, income, assets, and other financial information.
- The property: They will assess the property’s value, stability, safety, and factors relevant to the property’s value.
- The condo project: They will evaluate the overall condo project, since the condo you are purchasing is only one part of the entire property.
New and Established Condominium Projects
The difference between a new and established condo project is rather simple, though mortgage requirements between them are significant.
- Established Condominium Projects:
- All units, common elements, and related facilities are finished and are not subject to any additional phasing.
- At least 90 percent of all the units have been conveyed to the unit purchasers.
- The unit owners control the homeowner’s association.
- New Condominium Projects:
- All units, common elements, and related facilities are not complete or are subject to additional phasing.
- Fewer than 90 percent of all the units have been conveyed to the unit purchasers.
- Developer has not turned over control of the homeowner’s association to unit owners.
Streamlined Review Process for Established Projects
To expedite the process of getting a condo mortgage, Freddie Mac has a streamlined review process for established condo projects.
- Unit falls under the established project category.
- The mortgage must meet the required LTV/TLTV/HTLTV ratios for the occupancy type.
- The unit is not a manufactured home and not an investment property.
If you are thinking about buying a condo, remember it is much easier to get a mortgage for a condo in an established condominium project. So to save time, work closely with your mortgage broker while looking for a condo, and look for a unit that is in a project that qualifies as an “established condo project.”
Risks of Taking on a Condominium Mortgage
Although condo living has a lot of benefits, there are inherent risks of owning a condo, since you do not own the entire property. As a result, lenders evaluate the entire condo project, in addition to the individual property you are seeking to purchase.
A few of the risks you should take into consideration are:
- The financial stability of the project.
- The condition and marketability of the project.
- Limitations on the owner’s decision-making ability regarding the property.
- Litigation involved in the project.
- Insurance to protect condo owners against loss.
Qualifying for a Condo Mortgage
As we’ve seen, it is more difficult to qualify for a condo mortgage, because the whole condo project must be approved, not just the borrower and the individual unit being purchased.
It’s imperative, therefore, that condo homebuyers get pre-qualified and pre-approved for a mortgage, and understand the types of condo projects acceptable to lenders in light of their personal finances.
Related: Condo Mortgage Infographic
Marimark Mortgage serves the mortgage needs of homebuyers, homeowners, and investors in Florida, Virginia, and Pennsylvania.
Because of our vast experience with condo mortgages, we are able to successfully work with lenders through the challenging details of getting approved for a condo mortgage.
We specialize in conventional home mortgages, FHA, VA and USDA mortgage options, refinance loans, and reverse mortgages. We’ve worked extensively with cash-out refinancing, and help clients with HARP refinancing to lower their monthly mortgage payments.