What is a good debt-to-income ratio for a mortgage?
Debt-to-income ratio is the portion of your income that goes toward paying debts. DTI affects how much house you can afford. Learn how to calculate.
Diana Flowers
These loans can be trickier to get than typical mortgages
Condominiums come with unique benefits and responsibilities that set them apart from other housing units. Condos are neither single-family homes nor apartments; typically, they’re large properties with multiple units, each owned individually.
Often, a condo is a good choice for folks who prefer convenience. A potential trade-off, though, is the process of getting a condo mortgage. The requirements for condo mortgages are stricter than those for single-family homes, and the rates are higher. Also, there are costs associated with condo mortgages that buyers usually don’t have to pay with a traditional home loan.
If you’re considering buying a condo, learning about condo mortgage requirements is crucial. Here’s what you need to know about how these loans work.
Obtaining a condo loan is typically more complex than getting a mortgage for other types of property. This is because a condo’s value is subject to specific factors, many of which aren’t controlled by borrowers. Mortgage companies in the U.S. have higher eligibility criteria for condo loans to account for these risks, making qualifying for a condo loan a relatively complex process.
Obtaining a condo loan is typically more complex than getting a mortgage for another kind of property.”
During the underwriting process, the lender or bank reviews your finances and the financial state of the condo association for the unit you’re interested in buying.
The bank considers the following factors:
These requirements will vary depending on the mortgage you’re going for.
There are several types of condo loans. The most common types include:
If you’re a first-time homebuyer and need a loan with a low down payment requirement, you might opt for an FHA loan. It requires only a 3.5% down payment from qualified buyers. You can look for approved condos using an online tool provided by the Department of Housing and Urban Development.
This type of home loan helps veterans, military members and their families purchase a home without a down payment. The VA has a list of approved condos, but you may also be able to buy a condo not on the list by submitting a proposal to the agency.
The USDA loan program lets eligible purchasers in qualified rural locations buy a condo or home without a down payment. Just as with FHA and VA loans, the condo must be an approved property or you have to receive approval from the USDA.
Conventional condo loans are subject to approval by the private lender. A conforming conventional loan must meet guidelines from Fannie Mae, Freddie Mac and the Federal Housing Finance Agency.
This type of mortgage exceeds the loan limit for conforming loans. You can get a jumbo loan to obtain a condo mortgage. The requirements are typically a bit stricter than for other conventional loans. Jumbo condo loans are used for high-value condos, like luxury condos.
Qualifying for a condominium loan largely depends on your financial situation and whether the condo you choose meets the standards of the lender.
The income and credit score you need to qualify vary by loan type. For instance, to get an FHA loan, the lowest credit score you can have is 500; USDA and VA loans do not have a minimum credit score.
Generally, to be approved for a condo loan, the FHA requires that your condominium meet the following requirements:
To qualify for the VA loan program to buy a condo, the unit must meet the following criteria:
The USDA loan has similar guidelines to those set by the FHA and VA loans, including:
Fannie Mae and Freddie Mac have guidelines much like those set by the FHA and VA for financing condos, with minor differences:
Condos are a popular option with those who appreciate apartment-style living, shared spaces and limited maintenance and repair responsibilities. If you want your own yard — and to take care of it — then a condo might not be for you. Condo living also means depending on a property management company to take care of the property.
Condos can be a good investment for many, but they do come with stricter mortgage approval guidelines. They are generally cheaper than single-family homes, though, so if you’re willing and able to pay those higher rates, you could save in the long run. Just know that you’ll have to deal with monthly association fees on top of a potentially more difficult loan process.
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