Loans are available in all 50 states. Both agencies have made it easier for condo and co-op associations to get their buildings approved. Mortgage financing is more of a challenge for buyers of non-warrantable condos. There are fewer available programs for these dwellings. When you buy into a condominium community, mortgage lenders apply extra scrutiny to the application — both you and your future HOA must comply with a set of underwriting guidelines.
Scarlett Tassone, Vice President and mortgage banker with PrivatePlus Mortgage in Atlanta, says mortgage loan providers each have different rules and stipulations regarding financing for a condo. If you are eyeing a townhome instead, securing financing may not be quite as complicated. This type of property may or may not lie within a planned unit development PUD. Either way, finance underwriting guidelines similar to those for single-family homes apply. Be sure the association provides all the numbers and paperwork the lender requests.
Recent changes to condominium guidelines by Fannie Mae and Freddie Mac have made securing approval easier for HOAs, and many mortgage lenders are equipped to help with the process. Tassone says to be aware of the cost of condo or association documents.
If the property is ultimately not approved by the lender, consider hunting for an approved multifamily property, or one with lower or no association fees. Lastly, be aware of the financial risks of owning a townhome or condo; these properties may not appreciate as quickly as single-family homes.
You may encounter a situation where the condo is non-warrantable when you decide to sell it, and future homebuyers may have to undergo a similar process that you went through.
This may negatively impact the final sale value of the home. The reason s why a condo building is non-warrantable may be enough to discourage you from owning a unit in that building. This owner suddenly declares bankruptcy and your local real estate market is flooded with condos from within your building. These condos will sell at a lower price due to the law of supply and demand, and this would sabotage the comparables for the entire building.
Your unit could end up selling for less than it would have without that excess inventory being dumped. Condominium units are seen as riskier investments by lenders compared to single-family homes.
With a single family home, the owner is purchasing a plot of land and has complete control over the maintenance of the interior and exterior grounds. This contrasts to a buying a condo, whereby the owner is only purchasing the right to a unit on land jointly owned by all of the homeowners and maintenance is controlled through the HOA.
Basically, lenders have to not only worry about your creditworthiness but also the physical and fiscal health of the entire building. Lenders have to take additional steps to ensure that their collateral could be readily sold. Purchasing a non-warrantable condo may or may not be the right thing for you. The biggest obstacle in your path will be securing financing with reasonable terms.
If that cannot be accomplished, it is likely prudent to walk away and find a warrantable condo. Alternatively, you may be able to achieve excellent terms and negotiate a lower price on the condo due to your troubles. Consult with your Realtor and lender to determine the best option for your situation!
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What is an all-cash offer? An all-cash offer is an offer on a house that is not contingent on the buyer obtaining financing. Typically, a condo is considered warrantable if:. Because of these rules, some of the common property types which fall into the non-warrantable category include condotels, time shares, fractional ownership properties, and other projects which require owners to join an organization, such as a golf club. A warrantable condo will get you access to lower mortgage rates than a non-warrantable condo because warrantable condos are lower risk to the bank.
For buyers of non-warrantable condos, mortgage financing is a more of a challenge.
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