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Financing A Condominium

Financing a condominium is not impossible but it can be tricky.  The very elements that make them attractive to a home buyer are the same items that can hinder the financing process.  For example, compare the difference of adding landscaping to the front yard of a single family residence and that of a condominium.  If you own a house and want to add some flowers you simply go to the store and pick out what you want.  With a condo, it requires the majority of your neighbors to agree not only on the type, but the color and the placement, installation process, etc.

If a borrower defaults on a mortgage secured by a single family house the lender only needs to be concerned about one property.  A condo is different, the owner belongs to the Home Owner’s Association that manages the community.  There is a very good chance if the owner has stopped making the mortgage payments they are probably also behind on their association dues.  The lender must deal with cleaning up an extended problem whenever a condo mortgage goes in default.   Condo Associations are usually non-profit organizations that are run by a board of directors.  They may hire a property management company to take care of the day-to-day needs of the property.  It is easy to see how this type of property is more complicated for a lender to deal with compared to a single family residence.   I do not believe it is an exaggeration to say all lenders would rather finance a single family over a condo.

Condo Guidelines

Lenders review a mortgage loan application using a set of pre-defined rules referred to as their guidelines.  Every type of loan has a different set of guidelines.  For example, when a borrower applies for an FHA loan the approval process uses a set of guidelines designed for FHA loans.  Conventional applications would use conventional guidelines and for a VA, you get the picture.

When the property being mortgaged is a condo there is an extra layer, a set of guidelines specifically for condominiums.  The loan officer and underwriter must still use the first layer, so a buyer that wants to use an FHA loan to finance the purchase of their condo, it must meet not only the FHA rules but the condo rules as well.

So why all the fuss?  It’s just a couple more papers, right?  Not exactly.  Getting the information needed to answer the questions in the condo guidelines is not always easy or cheap.  I recently spent two weeks trying to get two documents from a home owner’s association, one form wasn’t fully completed and the budget took forever to get.

Buyers Should Know The Details

I am amazed that a buyer would make an offer on a condo without having access to all of the information the lender will need.  If it is important information to the lender shouldn’t it be more important to the buyer?

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