Buying a condo is often an excellent choice for people who don’t need the size of a single-family home or simply value convenience. But getting that convenience often means facing a few extra challenges when qualifying for a condo mortgage.
That’s not to say that the additional wrinkles in obtaining a mortgage for a condo will present significant barriers; as long as you’re prepared for them and know what to expect, you should be all right.
Mortgage for Condo vs. Single Family Home
Getting a mortgage for a condo has several critical differences compared to securing financing for a single-family home. Carefully consider the following hurdles before starting your condo-buying journey.
The Interest Rate May Be Higher
The mortgage rates on condos are usually higher than what the same borrower would pay if purchasing a single-family home on similar terms — varying between 0.25% to 0.75% higher depending on the mortgage type. That’s because condo mortgages are considered somewhat riskier than mortgages for single-family homes.
You can get a lower interest rate with each mortgage type by providing a larger down payment. That’s often easier said than done, but the long-term savings can be meaningful.
You May Need a Larger Down Payment
As noted above, you typically need to put at least 25% down on a condo to get the best rates offered on a conventional loan; however, single-family homebuyers can get the best rates by putting down only 20% or less.
To counterbalance larger down payments, condos tend to cost less than single-family homes, so your principal mortgage payment on a condo will likely be lower than it would be on a house. By shouldering a larger down payment during the purchase process, condo owners can enjoy far lower monthly and overall payments over the life of their mortgage.
Don’t Overlook Association Fees
All condominium developments have homeowners’ associations (HOAs), which are responsible for the upkeep and repairs of the building exteriors, the grounds, and any commonly shared facilities. These are funded through dues that condo owners pay each month.
HOA dues can vary widely depending on the services provided and how costly it is to maintain the overall property. As a rule of thumb, you’ll rarely find them lower than $100 a month, while $500 and above is common for higher-end properties. Keep in mind that association fees are not fixed — they can be raised, sometimes significantly, if your HOA decides it is necessary.
While HOA fees are an added expense, they can save you money in other ways. Because the HOA is responsible for maintaining the grounds and handling exterior repairs, you don’t have to worry about major projects like a new roof, replacing siding, or lawn maintenance. You will, however, still be responsible for maintaining systems inside your unit — such as the furnace and water heater.
How Condo Mortgages Work
When living in a condo, you have a shared interest in the property with the other residents of the development. The HOA bears responsibility for ensuring that the entire development can continue to function as a viable entity. In this regard, a lender will want to ensure that both you and the development are on firm financial footing before approving a mortgage.
All loan types and lenders have specific standards that condominium developments and their HOAs must meet before a mortgage will be approved. Typical requirements include that at least half of the units must be owner-occupied and that no single investor can own more than 10% of the units.
Non-Warrantable Condos
Condos not eligible for conventional, VA, FHA, or USDA financing are called “non-warrantable.” While they can be tough to finance, this doesn’t necessarily mean they’re run-down or undesirable — many are high-end, brand-new luxury units. However, the lack of government-backed loan guarantees makes them costly.
Financing for non-warrantable condos is often arranged through a local bank or financial institution with which the buyer has an established relationship. Down payments may be as high as 50% of the purchase price, and the loan will typically be an adjustable-rate mortgage (ARM) at a higher interest rate than a conventional ARM.
Taking on a non-warrantable condo mortgage is not for the faint of heart. If you have the liquid cash to take on a non-warrantable loan, you may be better off finding a property that qualifies under more traditional financing — where you can make a larger down payment and enjoy lower monthly payments and interest rates.
Condo Mortgage Requirements
Just like other types of property, each type of conventional and government-backed loan has different qualification requirements for a condo mortgage. Whether you’re going for a conventional, VA, FHA, or USDA loan, you should ensure that you meet their minimum requirements before applying.
| Condo Mortgage Requirements | ||||
| Loan Type | Conventional Loan | VA Mortgage | FHA Loan | USDA Loan |
| Credit Score | Fannie Mae and Freddie Mac guidelines allow for scores starting at 620, though higher scores are typically needed for the best rates. Refi.com requires a minimum of 620. | The VA does not set a minimum credit score, but most lenders do. Refi.com requires a minimum of 620. | FHA guidelines allow scores as low as 500 (with 10% down) or 580 (with 3.5% down), but most lenders set their own minimums. Refi.com requires a minimum of 620. | The USDA does not set a minimum credit score, but most lenders require at least 640. Refi.com requires a minimum of 620. |
| Down Payment | At least 20%. | Not required. | 3.5% down for credit scores at or above 580; 10% down for scores between 500–579. | Not required. |
| Eligibility | N/A | Borrower must be a qualifying Veteran, active duty or reserve member, or surviving military spouse. | Condos must be on the FHA’s approved list. | Condo must be designated as rural or semi-rural by the USDA. |
| Mortgage Insurance | Required unless you make a down payment of over 20%. | Not required. | Requires a Mortgage Insurance Premium of 1.75% of the loan value, plus annual payments. | Not required. |
| Debt-to-Income Ratio | 36% and below. | 43% and below. | 43% and below. | 41% and below. |
| Limits | N/A | No limit if you have full entitlement. | FHA loans have limits that vary by county. | Borrowers typically can’t make more than 15% of the median income for the area. |
| Residence Status | N/A | Must intend for the condo to be your primary residence. | Must intend for the condo to be your primary residence. | Must intend for the condo to be your primary residence. |
Refinancing a Condo
After you’ve spent a few years building equity in your condo, market conditions may have improved and interest rates may be lower than when you initially purchased. Just like with a single-family home, refinancing a condo allows you to tap into your equity, secure a lower interest rate, or shorten your loan term with a faster repayment schedule.
While the process of refinancing a condo is fairly straightforward, there are a few key standards that differ from a typical refinance:
- The condo complex must adhere to the relevant insurance guidelines set forth by the loan type.
- Your condo unit must have proper title insurance coverage.
- Unit owners seeking to refinance must hold undivided ownership or an interest in the land where the condo project is situated.
- Unit owners must possess exclusive rights to and ownership of the common areas within their condo units.
Depending on the state where the condo is located, there may be additional requirements and regulations — such as a limit on how many units in the complex can be rented out. If you’re interested in refinancing your condo, start your application with Refi.com and we’ll help you navigate the requirements for your specific loan type.
The Bottom Line
Condo mortgages differ slightly from single-family home loans, but you shouldn’t face excessive difficulty if you come prepared. Make sure your finances are in order — the upfront costs can be higher than buying a traditional home — and confirm that your chosen condo meets the requirements for your loan type before applying.
Whether you’re purchasing a condo or looking to refinance one you already own, Refi.com can help you find the right loan for your situation. Start your application today and see what you qualify for.
