What to Know Before Financing a Condo
We are often asked if taking out a loan to buy a condo unit is any different than borrowing to buy a house. While we know many homeowners who have mortgages on condominiums, there are a couple important aspects to consider when financing a loan for a condo. We’re going to discuss how your loan to value (LTV), and type of review will play an integral part of getting a loan.
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If you’re buying a condo, you need to consider whether the project review will make any difference in your LTV, and vice versa. The two types of approval are a limited review and a full review. Getting a full review approval usually allows the homebuyer to finance up to 95% to 97% of the LTV if the condo will be owner occupied, or up to 90% of the LTV if it’s a secondary home, and up to 85% of the LTV if the condo is an investment property. Remember that not only is the individual unit underwritten, but also the entire project gets analyzed, which can cause headaches and delays in the loan process. Putting more than 20% down usually allows you to have a limited review if it’s an owner occupied condo. But that doesn't guarantee that the project is eligible for limited review. New condo projects, which may have ineligibility issues, could change it to a full condo project review.
The limited review has 10 yes or no questions:Is the project new and attached? Does the project operate like a resort condominium, condotel, leasehold, live-work or have a rental desk? Is the Homeowners Association still controlled by the developer? Is the project subject to additional phasing or add-ons? Does any single entity, individual, or group own more than 10% of the total units in the project? (5-10 units, one entity may own two units). The form states that if the answer is “yes” to any of the above the borrower is not eligible for a limited review? Are the units, common areas and recreational facilities of the project 100% complete with no additional phases to be built? Are at least 90% of the total units sold and closed? Is the HOA clear of any pending litigation or arbitration? Does the project contain less than 25% commercial space? Do the unit owners, through the HOA, have sole ownership interest in and rights to the use of the project's facilities and common areas? The form states that if the answer is NO (to these 5 questions) the borrower is not eligible for a limited review.
The full review can have anywhere between 25-60 questions and requires much more supporting documentation. Follow this link to learn more about Condo Project Review and Insurance Requirements. If you need a full review, make sure you have an experienced Loan Officer walk you through each question to be sure that your information is accurate so the loan can proceed!
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