What’s Different About Getting a Condo Mortgage?
A condo is usually the option for those who appreciate the convenience. However, getting that convenience comes with a cost. you must deal with some additional different challenges when you are trying to qualify for a mortgage on a condo.
The requirements for condo mortgages have higher standards than requirements for conventional home loans and mortgage rates tend to be higher, too. There are some costs that you need to cover with a condo mortgage that isn’t incurred when you take out a conventional home loan.
And, not only that, as well as having to be able to qualify for the mortgage and the homeowners’ association in which you’re buying the condo must meet certain criteria too.
However, the additional complexities involved in getting an apartment mortgage could be the biggest obstacle to obtaining the loan. provided that you’re ready for them and are aware of what to expect, you’ll be fine.
These are the major facts about an apartment mortgage that you must know about.
The rate could be higher
The rates for mortgages on condominiums typically are higher than the rates a buyer would pay if they were purchasing a single-family residence in the same conditions. This is because condominium mortgages are considered to be riskier than mortgages for single-family houses.
If you have a conventional mortgage that is insured by Fannie Mae the interest cost for a condo would typically be between one-eighth and a quarter of a percent (0.125-0.250 percent points) greater than what you’d get on the single-family home. It’s due to the fact that Fannie Mae charges lenders an upfront cost in the amount of 0.75 percent of the loan value for all condo mortgages that have lesser than 25 percent down. The lenders typically cover this cost by raising the rate of the mortgage to make up for the cost.
You can get around the more expensive rate by taking the 0.75 percent upfront or by making a cash down that is 25 percent or greater of your purchase. But a down payment this large is not within most condo buyers’ budgets especially first-time home buyers.
If you take out An FHA mortgage it is possible to pay a down payment for an apartment as low as 3.5 percent and pay the same interest rate as that you would with a greater down amount. However, it is important to note that the FHA will charge the upfront mortgage insurance cost in the amount of 1.75 percent of your loan amount. This fee isn’t a charge on Fannie Mae’s loans.
There is also the possibility that certain lenders offer higher rates on mortgages for condo mortgages that are made in certain states, including Florida as well as Nevada. Although these increases are usually quite small, in some instances they could be as much as half a percent higher than the rate you would have to pay for the same mortgage in an alternative state. These increases vary between lenders and it’s a good idea to compare.
You might require more money to make a down amount to make the
As mentioned above that you must make at minimum 25 percent down on a condominium to secure the most competitive rates for the Fannie Mae loan. Single-family homeowners can secure the best rates by placing just 20 percent down or less.
Furthermore, some lenders might require you to invest at least 20% down on a condominium in order to qualify for a loan. It’s largely a matter of the location of the condo and the condos located in Florida and Nevada specifically have higher down payment requirements than other states. However, in other states, the down payment required for the condo could be as low as 5 percent, for people who have excellent credit.
As mentioned previously, FHA mortgages permit down payments as low as 3.5 percent for condos. However, you’ll have to pay 10% if you purchase an apartment in a new development that doesn’t come with a minimum warranty of 10 years.
Don’t overlook association fees
Condominiums are generally priced lower than single-family houses (though this is partly due to the fact that they’re typically smaller) and therefore, the monthly mortgage payments on a condo could be less than what the one on an individual home. But, when you’re thinking about the mortgage you’ll pay for a condo, do not forget to factor in associated costs.
The majority of condominiums have what’s known as homeowners associations who are responsible for maintenance and repairs to the building’s exterior, grounds, and any common facilities. They are funded by the dues paid by condo owners each month in addition to their mortgage payments.
The homeowner association fees can differ significantly, based on the service provided and the amount it costs to maintain the property overall. In general, it’s unlikely to find they’re less than $100 per month, but $500 and more isn’t uncommon for larger properties.
Although it’s an additional cost to be added to your mortgage, homeowners’ association fees will aid you in different ways. Since the association is responsible for the maintenance of the grounds and making exterior repairs it is not necessary to worry about the occasional expenditures for things such as an upgrade to your roof, replacing siding, or even purchasing and operating a lawnmower. (You must be responsible for the maintenance of things that are inside the unit, which usually includes big items such as the water heater and furnace).
Be cautious when purchasing an apartment in a community that has fees for the association uncommonly low. This could mean that they’re not charging enough to maintain the property adequately which could lower the value of the individual property over time.
Be aware that the fees of the association aren’t fixed and are subject to change, often in a dramatic way, if your homeowner association feels it’s needed.
Can the item meet the requirements?
In an apartment, you’ll have a stake in the property you own together with the other homeowners of the building. A homeowners’ group is the one responsible for ensuring that the whole development will continue to operate as a legitimate entity. Therefore, a lender would need to be sure that both you and the project itself are on the solid financial ground before it can accept the mortgage.
Fannie Mae, Freddie Mac and Fannie Mae, Freddie Mac, and the FHA all have specific requirements that condominium developments as well as their homeowner’s associations must meet prior to being able to allow a mortgage to purchase an apartment there. The most fundamental requirement of the three organizations is that at minimum, half of the units have to be owned by the owner and that no one investor is allowed to hold more than 10 percent of the unit (different rules apply to newly constructed properties).
Fannie along with Freddie also requires homeowners’ associations to contribute 10% of their annual earnings to a reserve fund to meet the long-term need. The FHA is a much stricter requirement and demands that property pass an audit of its financials within the last twelve months. Many developments don’t want to take this test each year, which reduces the number of FHA-approved condominiums which are available for sale.
If a project doesn’t conform to the “agency” guidelines, it’s nevertheless possible to obtain a mortgage for condos through a “portfolio” lender. These are lenders who don’t offer their loans to Fannie Mae or the FHA or any other agencies, and instead, keep them in their personal portfolios of investments, or direct to buyers.
They don’t have to adhere to the FHA/FHA/Fannie/Freddie guidelines, however, the investors are able to make their own. They generally have fewer restrictions but generally offer significantly higher rates of interest that can be as high as three percentage points higher than the rates of the top agencies. A down payment requirement of 20-30 percent or higher is also common.
These factors can make the process of getting a mortgage for a condominium more difficult than getting one for a home that is a single family. But they shouldn’t be huge issues, as long as you’re ready for them.
Summarizing the differences between Getting a Condo Mortgage?
Below once again let us outline the possible differences as it concerns getting a condo mortgage:
- The rate could be higher
- You might require more money to make a down amount to make the
- Don’t overlook association fees
- Can the item meet the requirements?