Below are twelve things buyers and agents should consider if they plan to finance the purchase of a condo.
I repeat these items from time to time b/c they are so important and b/c we continue to add so many people to our blog distribution list.
- Concentration Rule. No single entity/person can own over 20% of the units in the complex. Prior to 2018, the ownership limit was 10%.
- Commercial Use. No more than 35% of the square footage of the entire complex can be “commercial.” Prior to 2018, the limit was 25%.
- Investment Properties Subject to “Limited Review.” This is new too, as investment condos formerly required “Full Reviews.”
(Limited Review means only the condo’s insurance policy is required; no info regarding HOA delinquencies, budgets, etc. is required) - Owner Occupancy Ratios. Owner Occupancy is irrelevant if a buyer intends to occupy the unit. It must be over 50%, however, if the buyer is an investor.
- Rates Are Higher. Condo financing has higher interest rates if the LTV is over 75%.
- HOA Delinquencies. No more than 15% of the units can be more than 60 days delinquent with HOA dues. This is rarely an issue these days, but it surfaces often during real estate downturns (it was a common issue from 2009 – 2012, for example).
- Litigation. Litigation involving the HOA is usually a deal-killer, but not always if it is minor or doesn’t affect the subject unit. We need to review the actual litigation/complaint. We can also use a non-Fannie or non-QM lender, but the interest rate and down payment requirement will be higher.
- FHA/VA Approval. Entire condo complexes need to be FHA or VA approved before FHA or VA financing can be used to finance a unit. You can find FHA’s list of approved complexes here, and you can find VA’s list here.
- 3% Down. This is a reminder that we offer 3% down financing for condos up to loan amounts of $484,350. This is a great alternative to FHA financing but guidelines are much stricter. For “High Balance” loans (from $485,351 to $726,525), the minimum down payment is 5%.
- Is it a Condo or a PUD? This is a reminder that you can’t tell simply by looking at a unit. You need to check the zoning. If the unit does not touch the ground it is very likely a condo. But if it does touch the ground, it could either be a PUD/townhome or a condo. PUD/townhomes are not subject to any of the condo restrictions.
- HOA Dues. Lenders need to know exactly what they are b/c they are much higher nowadays than in the past and they significantly affect qualifications.
- Two to Four Unit Complexes No Longer Require Project Reviews. This is a relatively new change and it just means that is it much easier to get financing for small complexes now.
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 01524255, NMLS# 335646
