Looking to buy a condo? The good news is, there are plenty of quality condos for sale in a wide variety of price ranges. The bad news is, buying a condominium is more complicated than buying a traditional single-family home. This is because mortgage lenders have different requirements for buyers interested in purchasing a condo.
This doesn't mean that buying a condo is hard or stressful. But you should be aware of the different requirements that lenders enforce before they approve condo buyers for loans.
The key difference is that when you apply for a loan for a single-family home, mortgage lenders focus mostly on you and whether you are a good risk to pay your loan back on time. When you apply for a condo loan, however, lenders must also worry about the financial health of the condo development in which you want to buy.
If you're applying for a conventional mortgage guaranteed by Fannie Mae or Freddie Mac or one insured by the government such as an FHA or VA loan, you'll need to make sure that the condo unit you want to buy is warrantable.
What does this mean? First, no one owner can own more than 10 percent of the units in the condo development in which you want to buy. Secondly, at least 51 percent of the development's units must be occupied by actual owners, not investors who are renting out their units.
You'll also need to make sure that no more than 15 percent of the owners in the development are 60 days or more late on their monthly mortgage payments or association dues. Finally, the homeowners' association governing the condo development can't be involved in any litigation.
If the condo unit you want to buy is in a development that doesn't meet these requirements, you won't be able to finance the purchase of it with a loan guaranteed by Fannie or Freddie or insured by the federal government.
This doesn't mean that you won't be able to buy that unit. You can always purchase it in a cash sale in which you don't have to rely on financing. But if that's not possible, you can also seek out a private loan. These loans are offered by lenders who keep them on their books, never selling them. They're known as portfolio loans, and they often come with higher interest rates and fees than do conventional or government-insured mortgages.
Don't let this dissuade you, though. We are experienced real estate agents, and we've helped many buyers purchase condos in the Chicagoland. If you're ready to shop for a new condo, give us a call. We'd be happy to explain the process and prepare you for your hunt.