Buying a condominium unit is also buying a certain lifestyle. Many condominium projects are in higher density, urban areas next to shopping, entertainment and work. But even though a condo is just another way to legally own property, there are some things you’ll need to consider to make sure a condo is right for you. With a condo, you own the interior space of your individual unit and you share equally the common areas outside such as a swimming pool, workout facility, landscaping and sidewalks. All owners equally share the land upon which the project rests.
Each month or each year you’ll pay a Homeowner’s Association (HOA) fee which covers property management and maintenance. When the HVAC system goes out, project management fixes it, not you. If your dishwasher goes on the blink, that’s your responsibility.
You can use a conventional or a government-backed mortgage to buy and finance a condo. A conventional loan is the most popular and by far is the primary choice for most buyers. A conventional loan will require the property be reviewed by the lender. There is a limited and a full review. A full review is extremely thorough which requires the legal documents that regulate the project be reviewed and audited. For most, a limited review is the better option as long as the buyers have at least 10 percent down for a primary residence and 25 percent for a second home.
When you submit your loan application and the property is a condo, the lender will forward a questionnaire to project management to make sure it meets required guidelines. Here are some of the main ones:
- More than half the units must be occupied by the owner
- There can be no pending or current litigation between project management and third parties
- No single entity can own more than 10 percent of the total number of units in the building
- Less than 15 percent of the owners can be delinquent with HOA dues
- There can be no daily/nightly rentals and if there is any commercial space such as restaurant or separate workout facility, the square footage for the commercial space must be 25 percent or less than the total livable square footage for the project
FHA loans can also be used to buy and finance a condo. A condominium project must be approved directly by the Department of Housing and Urban Development or approved by a Direct Endorsement FHA lender which has the authority to review the project to make sure it complies with FHA standards. If the project has previously been approved for an FHA loan, HUD keeps a list of approved condos. If the project is on the approved list, there is no further evaluation needed. If not on the list, the property must first receive an approval. This process can take 30 days or more if a lender makes the determination and much longer if submitted to HUD.
The Department of Veteran’s Affairs also finances condo units and keeps its own database of approved projects. If someone plans on using a VA loan to finance a condo and the project has not been approved, understand that it can take much longer to get the project approved by the VA, sometimes as long as three months or more. If considering either an FHA or VA loan, the first step is to some research to see if the project has previously received and approval.