Buying a Condo? Here's what you need to know
In putting together a series on buying a condo with mortgage financing, I already dove into some of the more complicated property types, transactions, and potential pitfalls - those involved with non-warrantable condos & condotels.
We skipped over the more basic, but also very important, information that anyone buying a condo of any type needs to look out for. Buying a condo is similar to buying a single family home in many ways. Same loan application, same documentation needed from the borrower. Where things differ most is how a lender analyzes the property.
First and foremost, condo buyers using mortgage financing need to make sure they're working with a mortgage professional that is familiar and experienced with condo lending. An experienced condo lender will do the following:
- Send in a condo questionnaire AT THE BEGINNING of the buying process. I like to get a questionnaire done as early as possible to ensure a condo is warrantable and able to get financing under conventional or FHA guidelines. If not, we need to look at non-warrantable condo lenders and guidelines(see the link above).
- Include all condo costs into estimates. This includes the homeowners association fee and any capital contributions.
- Obtain the condominium's insurance policy up front. Since condo owners generally only need insurance similar to a renters policy, it's up to the condo association to maintain acceptable insurance. Finding out there's not enough insurance late in the game can cause problems.
Buyers who would like to purchase a condo with mortgage financing need to keep the following in mind:
- What do your HOA fees cover? What don't they cover?
- When are HOA fees due? Monthly? Quarterly?
- Will there be a capital contribution fee on top of your standard closing costs?
- Is the HOA in good shape financially and legally? Litigation or lack of reserves (especially in incomplete projects) can cause delays or failure to obtain conventional financing.
Using a lender & a real estate agent that have experience with condominium sales will ensure a buyer notices no difference in the buying process from the purchase of a single family home. On the back end and behind the scenes, there are differences that can make or break a deal and change financing terms, but a good lender and real estate agent will make sure there are no surprises, and make sure you know everything to expect going into your condo purchase.
Interested in learning more about condos and condo financing? Check out the other articles in our condo series:
Interested in buying a condo and need mortgage financing? Use our purchase assistant to discover your financing options.