CONDOMINIUMS – Everything You Need to Know About Mortgage Financing for Condos

Condos are hot here in Florida. But did you know, they can have special financing requirements?  We’re about to cover everything you need to know about Condominium financing and what you need to know about qualifying for a mortgage for this type of home.

We'll cover these three topics:

• What makes condominiums so different?
• The 3 different types of Condominiums
• The 5 major types of financing you’ll need to know for Condominiums

SO WHAT MAKES A CONDOMINIUM SO DIFFERENT?

Unlike a single-family home or multi-family home, a Condominium is a unique form of homeownership in which the interior space of the home is individually owned, while the exterior of the building and the land is owned collectively with the other unit homeowners.

Financing a Condominium works the same way as any other home loan, but there are a couple extra steps.  As you might imagine, you still need to qualify for the loan in the same way you would for any other type of home, but with a Condo, there are TWO extra steps:

STEP 1: CONDOMINIUM MEMBERSHIP: 

When you go under contract on the home, you have to apply for membership with the Condominium.  The Condominium itself can ask all sorts of things, including:

• An Application (Potentially an upfront Application Fee)

• Occupancy intention (primary home, vacation home, or whether you intend to use the unit as an income-producing investment)
• Background check
• Some condominiums may have minimum age requirement, and some even require that you prove that you have a substantial down payment, sometimes greater than you intended for your new loan. 

The bottom line is, if you intend on joining their community by purchasing a condominium unit, you must abide by their admission rules.

STEP 2: LENDER APPROVAL OF THE CONDOMINIUM

The Condominium itself also must qualify for the new loan as well. Because the condominium is the collateral for your new loan and because the exterior of your home is maintained by the community, it means that the lender has the right to inspect the financial fitness of the condominium. Once you’re under contract, the lender reaches out to the condominium and has them produce a list of items needed for loan qualification. 

This can include:

• 1.    Condo questionnaire – a multi-page form with questions about the status of the community.
• 2.    Financial disclosures, including items such as: 
• a.    Budget
• b.    budgetary reserves
• c.    Upcoming expenses.    
  
• d.   Engineering reports
• e.   Any impending legal action

Once the lender has reviewed all required items, the decision is made on whether the Condominium passes or fails the qualification for your new loan.

CONDO QUALIFICATION STANDARDS ARE NOT UNIVERSAL, AND MAY VARY

• The type of loan program you are qualifying for (Conventional / FHA /  VA / Non-QM or Portfolio)
• The occupancy type (Owner-occupied, Second/vacation home /  Investment home)
• The lender’s own company policies (internal company or investor policies that may supersede Fannie Mae or Freddie Mac guidelines, often referred to as 'overlays')
• The type of Condominium you’re trying to finance. (Condominium, Non-Warrantable Condominium, Condotel)

THE 3 DIFFERENT TYPES OF CONDOMINIUMS

1. Condominium

This is a standard condominium.  It can be one story, two story, a 30 story tower---it can have a parking lot ora parking garage…but no matter how it looks on the outside, the legal description defines it as a condominium.  It will have a Condominium Association and sometimes a Property Management Company to run the day-to-day affairs. They will have their own community bylaws. A well-run condo will set community limits on the number of investment units, limits on single-entity ownership, maintain sufficient insurance coverage at all times, and have at least 10% in reserves in their budget.  

A well-run condominium will usually qualify for Conventional loan standards set by Fannie Mae and Freddie Mac, provided they meet the required criteria; but they can also be approved by FHA, VA, and other loan program types as well such as our Flex Mortgage Program or our Private Client Portfolio Program.

2. Non-Warrantable Condominium

A non-warrantable condominium looks just a like a standard condominium, except that the association fails to meet one of more of the criteria required by Fannie Mae and Freddie Mac. 

Some of the most common reasons why a condo would fail a standard condominium review are:

• Lack of reserves in the budget
• Number of investor units is too high as a percentage of the overall community.
• Insufficient insurance coverage
• Structural issues with the construction and stability of the building(s) or common areas. 

But there can also be many other reasons why a condominium can fail the review.  If your condominium fails a review, your lender can explain the reasons and provide alternative solutions.  Many times condominiums require an a lender that is experienced and has a wide variety of loan programs to suit multiple scenarios. IF YOU ARE BUYING A CONDOMINIUM IN FLORIDA AND YOUR CONDO IS DENIED, we'd be delighted to review your scenario and offer you some solutions.  You can CONTACT US HERE!  

YOU CAN STILL GET A MORTGAGE FOR A NON-WARRANTABLE CONDOMINIUM, but it will require a specialized loan program, not a Conventional loan program, FHA, or VA loan program. (we’ll cover these in a moment)

3. Condotel

A Condotel is a type of Non-warrantable Condominium designed primarily around INVESTMENT/ RENTAL INCOME PURPOSES. The name comes from the combination of “Condo” and “Hotel”.   From the outside, they may look exactly like a standard garden-variety Condo, but in reality, they a type of non-warrantable Condo that’s operating like an income-generating resort. 

The down payment requirements and the interest rates are higher for condotels vs standard condominiums, so make that you’re keeping a close eye on this during your home search to maximize your efforts.  

LUCKILY, THERE A FEW EASY RED FLAGS TO HELP YOU IDENTIFY IF A CONDO IS A CONDOTEL: 

• Concierge Desk that manages check-ins and rents and scheduling
• They offer short-terms rentals like AirBNB, VRBO, Booking etc., 
• Local on-site transportation buses
• They boast of having on-site luxury amenities
• Many condotels even have the word “resort” in their name 

THE MAJOR TYPES OF MORTGAGE FINANCING YOU NEED TO KNOW FOR CONDOMINIUMS

So if you're wondering, what type of mortgage do I need for a condominium?  Here’s a handy grid to help explain the type of mortgage that you can use with each condominium type. Each loan program is linked to linked to a loan program description so you can learn more.

If you are looking to purchase a condominium, non-warrantable condominium or a condotel anywhere in the state of Florida, we'd love to discuss your scenario and provide you with solutions--and the experience to get you to the closing table!  CONTACT US HERE TODAY!

MORTGAGE FINANCING OPTIONS BY CONDOMINIUM TYPE:

1. CONDOMINIUM

Standard Condominiums--especially if they meet standard approval criteria for Conventional loans--offer the widest variety of mortgage loan options.  Conventional Home Loans are the most common choice for standard condominiums, but there are plenty of others to choose from. 

Click any loan program to learn more.

• Conventional Home Loans ▻
• FHA Home Loans ▻
• VA Homes Loans ▻
• Flex Home Loan ▻
• Private Client Portfolio & Asset-Based Lending ▻
• Cannabis Home Loans for Owners of Cannabis-based businesses ▻
• Combo Loan (Conventional + HELOC combination) ▻
• Jumbo Home Loans ▻
• Foreign National Home Loans ▻

2. NON-WARRANTABLE CONDOMINIUM

Non-Warrantable Condominiums have a more limited choice of mortgage loan options.  You can expect a larger down payment than a Conventional, FHA or VA loan.  Consult your Loan Originator for details.

• Flex Home Loan ▻
• Private Client Portfolio & Asset-Based Lending ▻
  
• Cannabis Home Loans for Owners of Cannabis-based businesses ▻
  
• Jumbo Home Loans ▻
• Foreign National Home Loans ▻

3. CONDOTEL

Condotels offer the smallest array of mortgage loan options.  Because Condotels are generally riskier in nature to the lender, the majority of banks and credit unions here in the state of Florida do not offer financing options for Condotels.  We specialize in this type of financing, and offer flexible terms for well-qualified applicants. 

• Private Client Portfolio & Asset-Based Lending ▻
  
• Cannabis Home Loans for Owners of Cannabis-based businesses ▻
  
• Jumbo Home Loans (Private Client Version only)  ▻
  
• Foreign National Home Loans ▻
  

WRAPPING UP

We hope this helpful. If you are purchasing or refinancing anywhere in the state of Florida, we would love the opportunity to assist you. 

Give us a call today or CONTACT US HERE.

Yours in successful homeownership,

Derek Bissen
Loan Originator
NMLS#365627
Unconventional Lending Program Director

​About the Author: 

Derek Bissen is a licensed Mortgage Loan Originator with over 25 years of experience in the industry. Derek is a self-employed lending expert who is known for his ability to work with borrowers who have substantial wealth and non-traditional lending needs. He is a creative loan structurer and specializes in portfolio lending, asset-based lending, bank statement lending, as well as traditional loans such as Conventional, FHA, VA, and first-time homebuyers.

Derek's expertise in the mortgage industry is unparalleled. He is a trusted advisor to his clients, providing them with customized loan solutions that meet their unique financial goals and needs. His vast experience and knowledge make him a valuable asset to anyone looking to purchase a home or refinance their existing mortgage.

As a highly-experienced loan originator and author, Derek is committed to sharing his knowledge with others. He regularly provides valuable insights and advice to readers looking to navigate the complex world of mortgage lending. His articles are informative, engaging, and backed by years of hands-on experience.

With his wealth of knowledge and dedication to his clients, he is the go-to source for all your mortgage lending needs. If you're looking for a reliable and trustworthy mortgage expert, contact Derek today to learn more about how he can help you achieve your financial goals.

WATCH A VIDEO VERSION OF THIS POST: