Condominiums are a great choice for many first time or second home buyers. Condominiums are often priced lower than a traditional stick-built home; and the HOA typically handles many of the exterior home maintenance responsibilities. However, it is important to anticipate some of the loan guidelines required for a condo purchase. Lenders view condos as a riskier investment. And even if you are approved for a home loan based on your credit, the property also has to be approved.
Condominium approval guidelines include: a review of the HOA financial structure and CC&R’s, occupancy rates, building condition, commercial business activity, and types of occupancy, to name a few. The lendability of a condo is referred to as “warrantable vs non-warrantable”. If a condo is “non-warrantable”, this will affect the terms of your loan.
Items that make a condo unwarrantable could include percentage of investment owners (to be less than 20%), percentage of reserves in the HOA budget (greater than 10%), percentage of commercial use (to be less than 35%), any timeshare ownership, or if there is pending HOA litigation. There are ways to address these items, but it is important to have an understanding prior to submitting the loan to an underwriter for loan approval. The requirements are written by Fannie Mae and Freddie Mac, but some lenders have additional “overlays” or requirements. By working with a broker these items can be discussed and the appropriate lender can be chosen.
Some of these potential “non-warrantable” items can be mitigated by a “limited review” which is triggered by the loan-to-value ratio, or the down payment. And discussing potential “non-warrantable” items with the HOA can sometimes be sorted out prior to submission of the home loan. It is important to work with a mortgage broker that understands the guidelines and can anticipate any challenges ahead of time.
If you are considering a condominium purchase. Please call me to discuss this program along with many other traditional and non-traditional home financing options McCall Mortgage Company has to offer
McCall Mortgage Company
310 E. Lake St, 2nd Floor,
McCall, Idaho 83638 • (208) 634-8253