In the process of choosing a home, you may consider buying a condo. There are a number of things to be aware of regarding your mortgage when purchasing a condo, and this short article will help give you the background and the tools necessary in order to purchase your new condo with the least amount of stress! We will start with some big picture items, and finish with a little more detail for each loan product.

Warrantability

The term thrown around the most when someone is considering a condo is “warrantable”, as in “is the condo warrantable?” Warrantability is about whether the proposed mortgage on the condo can be sold to Fannie Mae, Freddie Mac or another entity. Fannie Mae and Freddie Mac purchase many conventional loans, but they do not purchase government loans like FHA. Each loan type (conventional, FHA, etc.) has its own guidelines for condos. One condo may not be “warrantable” or salable with FHA, but warrantable with Fannie Mae.

A Lender’s Perceived Risk

There are more rules surrounding condos due to the potential risks to the lender. Condos have characteristics that are historically risky. In order to explain without diving too much into the weeds, lenders want to be sure that the property they are financing on will keep its value, not be involved in litigation, etc. This is the reason for more stringent rules when acquiring a loan secured by a condo.

Do not let the extra rules scare you though! A knowledgeable lender will guide you regarding the details of your loan and the condo’s parameters. However, there are certain things you can be aware of ahead of time on your hunt for your condo. These things are highlighted below.

Obtaining a Conventional Loan

With a conventional loan, your lender will review the property’s insurance, the HOA’s budget, etc. Many buyers can get caught up on how many of the units are rentals and how many are occupied by the owner. If you are purchasing a home in which to live, this question doesn’t matter. If you are purchasing a rental, then it matters. Additionally, if you are willing and/or able to invest a 10% down payment, the rules get much easier!

Obtaining a FHA Loan

With an FHA loan, the only thing to be aware of is whether or not the condo project is approved by FHA. If the approval has expired, then the condo is not eligible for FHA financing. A VA loan works the same way with its own approved list of condo projects.

When determining the type of loan to use when purchasing a condo, your options may be limited. For instance, if you can only qualify for an FHA loan, but you want to purchase a condo, you will only be able to buy a condo that is approved by FHA. Again, a good loan officer will guide you through all of the rules to help you get the best loan for your new condo!

If you have questions related to purchasing a condo, please feel free to call Angie Spangler. The goal is to help you get the information you need in order to make the best decision for yourself!

Source: Dexter Finley, Mortgage Loan Officer, Fairway Independent Mortgage Corporation, (970)488.0996; dexterf@fairwaymc.com