Hey, guys. Evan Swanson, Swanson Home Loans of Cherry Creek Mortgage here to talk to you today about the differences between applying for a loan to buy a condominium and a traditional detached single-family residence.
Why are there differences?
Well, understand, as a lender, we always must evaluate the collateral for the loan. When a person buys a condominium, they are buying into a small democracy. The homeowner’s association, which is charged with the responsibility of maintaining the common areas, which is often the structure in which the condominium is located. Not only do we have to take a borrower through the traditional steps to evaluate their finances, but we also have a separate underwriter look at the condominium itself to make sure the condominium is governed well and has the financial resources to maintain the property over time.
With regards to specific loan programs, what is there to look out for? If you’re using FHA or VA financing, there is a separate approval process that the HOA must go through and that project will be listed on those websites to determine if they are eligible or not. If the property is not eligible, chances are you’re not going to be able to use those types of financing to buy a condo there.
A couple other things for conventional and jumbo loans that an underwriter will likely want to look at:
The underwriter might want to measure as a percentage of all the units in the homeowner’s association what percentage are owner-occupied and what percentage are non-owner-occupied. Lenders like to see more owner-occupied because, in general, those owners will vote for assessments and maintenance investments that will help maintain the building over time.
Is the HOA currently in any form of legal litigation? If so, litigation has to be complete before a loan can fund, typically. Is the HOA under any major, significant construction? If so, oftentimes the construction has to be completed before a loan can fund.
The underwriter may also want to see if there is a concentration of ownership to a single person or entity? There can be limitations on how much a single entity can own of the entire project.
Residential vs. retail space
And then lastly, does the condo have retail space? Is it a mixed use? If so, there’s limitations on how much of the overall square footage can be allocated to retail and residential square footage.
The bottom line is there’s another set of rules that lenders must follow when helping guide a customer through a condominium purchase.
If you’re thinking about buying a condominium, make sure you’re working with a lender that understands those rules. Of course, if you’re looking for a lender, we would love to be a resource, so contact us today. Talk to you soon. Thank you.