What is a condo?
A condominium, condo for short, is a privately owned unit within a larger building of other units. Condos fall under a condominium association, which is legally responsible for maintaining, repairing, replacing and managing the common areas. The association also has the power to adopt and enforce guidelines for the members’ use of those common areas and will require residents to pay monthly or yearly dues.
Condo vs House
Owning a house typically allows you to do any remodeling you see fit. Condominium associations can limit the type of remodeling you can do and can enforce pet and rental restrictions. A condo also has less privacy than a house because you share the building with other units.
Pros of owning a Condo
- No exterior property maintenance
- Apartment-style amenities while building equity
- At times may be less exepnsive than owning a house
Cons of owning a Condo
- Restrictions on remodeling and lifestyle choices
- Higher monthly costs and mortgage rates
- May have conflicts with neighbors
- Can be harder to sell
You can use the same loan programs for condos that you’d use to buy a single-family house. However, there are some key differences in how lenders look at the two types of properties during the underwriting process.
In addition to vetting your finances, mortgage lenders also evaluate the condo association’s financial health. The lenders will determine whether the condo is warrantable by considering the following:
- Number of units purchased
- Number of units owned by investors (non-owner-occupied)
- Amenities
- Lawsuits that involve the condo association
- Number of unit owners delinquent on dues
- Upcoming special assessments
Types of Condo Mortgages
Conventional Loans These loans offer financing for condominiums with only 3% down, a minimum 620 credit score and cancelable mortgage insurance, so you don’t have to put 20% down when buying a condo. However, they use guidelines set by government-sponsored entities Fannie Mae and Freddie Mac, which mean that your condo has to be warrantable.
USDA Loan The U.S. Department of Agriculture offers a 100% financing mortgage. The program is also technically called a Section 502 mortgage, however, it’s more commonly known as ’Rural Housing Loan’ or a ’USDA loan.’
VA Loans Is a guaranteed loan by the United States Department of Veteran Affairs. Designed for acitve-duty military. Veterans, and their families, this loan requires zero money down.
FHA Loan Down Payment Federal Housing Agency (FHA) requires a down payment of 3.5%. A monthly mortgage insurance premium (MIP) and upfront mortgage insurance premium (UFMIP) of 1.75% is paid on every loan regardless of down payment.
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