Things to know about purchasing a condominium

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.

Loan programs

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.

For FHA: https://entp.hud.gov/idapp/html/condlook.cfm

For VA: https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch

A couple other things for conventional and jumbo loans that an underwriter will likely want to look at:

Occupancy

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.

HOA

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.

Applying for a home loan as a self-employed or an independent contractor

Video Transcript:

I frequently get asked how applying for a loan as a self-employed borrower or an independent contractor is different than for a traditional full-time W2 employee.

First off, applying for a loan as a self-employed or independent contractor is not automatic, means to deny or not approve a loan application. We can do loans and frequently do for independent, self-employed borrowers.

However, applying for a loan and having an underwriter calculate income for a self-employed, independent contractor is different than a traditional W2 full time employee.

With a traditional W2 full time employee we collect pay stubs, W2 forms, and that typically spells out the income that the borrower makes. With an Independent or self-employed borrower, we collect tax returns as the primary documentation that we rely on to calculate qualifying income.

For most self-employed borrowers we collect two years of the most recent filed tax returns and look at those calculations to determine income. If a self-employed or independent contractor has been in business for five years or more then we may be able to get away with only providing the most recent year. Most independent contractors file a Schedule C and report all of the income and expenses for their independent contracting on that Schedule C.

Mortgage underwriters do not rely on the top line gross revenue, or gross receipts. They rely on the net income figure that’s reported on schedule C, with potentially a couple of modifications made depending on the type of expenses that are listed.

Are you self-employed or an independent contractor and want to explore your options?  Contact me today and we’ll take it from there. Have a great one, thank you.