When you apply for a mortgage on a condominium there are a whole host of additional considerations the lender must analyze. I like to think of it as two separate approval processes, the approval of your own personal loan and a secondary approval for the condominium complex itself. They take place at the exact same time but go down to separate paths. Since the approval process for the loan itself is no different than that of a single-family home, we will focus on the project itself.
The first step is the completion of a condominium questionnaire that is typically filled out by the management company. This is a universal form that asks several questions about the stability of the complex. In addition, they will also look at the budget and the amount of reserves for replacing major items. Other items under review:
What percentage of unit owners are more than 30 days late on their dues
Percentage of the complex that is residential versus commercial
Whether any one entity owns more than 10% of the units
Whether control of the Association has been turned over by the developer
Want to see at least 10% of the annual revenue in a reserve account for replacement
While this may seem like overkill, it is for your own protection. Condominiums do traditionally decrease in value quicker than a single-family home in a declining market. Also keep in mind that if you are not putting at least 25% down for a down payment, your interest rate will typically be about ¼% more than on a single-family home. If you are applying for a FHA loan, the complex will either be approved by FHA or not approved. If it is not approved, it is not eligible for a loan at all. If you are looking at condos, feel free to reach out to us and we can help you research the viability of the complex itself.
Happy House (or Condo) Hunting!!!!