Getting a mortgage on a condo is different than getting a mortgage on any other type of residential property: condos are harder.
They are harder because they are riskier. They are riskier because lenders do not have to worry about only two entities only (borrower and property used as collateral); they have to worry about those + the common areas, the home owners' association and the other unit owners.
And there's nothing different mortgage broker or lender's loan officer can do to change that.
Would-Be Borrower Bob Looks for a Centennial Mortgage Broker
Let's say borrower Bob wants to buy a condo in Littleton, just south of Denver. He looks for a mortgage broker in Littleton or one in Centennial. No matter which one Bob chooses, his mortgage broker, to give him the best rate, will want to get him a conventional, conforming loan.
If that's not possible, this Centennial mortgage broker (Yes, we're making Bob pick the Centennial mortgage broker: she's got more good reviews on Yelp than the other ones plus I named this section "Would-Be Borrower Bob Looks for a Centennial Mortgage Broker. ") Will try to get Bob an FHA loan before trying any other kind of loan: they're cheaper (ie, they come with lower interest rates).
Conforming conventional loans are loans that Fannie Mae or Freddie Mac would purchase. FHA loans are loans that the FHA would insure.
The first thing to keep in mind is that it is a lot harder to get an FHA condo approval than a conventional, conforming one: the FHA will insure condo mortgages only on units that are part of an approved project or if someone spot-approves the unit (takes time, effort, and can cost money too) and their approval project is harder and it costs money to remain approved, so few projects stay approved.
So, the first thing people who're looking to buy or refinance a condo unit is to determine whether they qualify for a conforming conventional loan or not.
Or if the mortgage broker or lender they're working with can do non-warrantable condos. (Non-warrantable condos is how the mortgage industry calls condo units that do not fit the criteria of Fannie Mae, Freddie Mac or FHA.)
Non-warrantable condo mortgage loan programs have looser qualifying criteria but they still have qualifying criteria. Borrowers should make sure that their un-warrantable condo matches that criteria.
This is the link to check if a condo project is approved by the FHA: https://entp.hud.gov/idapp/html/condlook.cfm .
Bob's Minefield to Getting a Mortgage on the Littleton Condo
Although the complete criteria takes up multiple pages, most condo projects that do not comply with Fannie Mae, Freddie Mac and the FHA's programs do so because they do not meet one of the following 7 requirements:
1. The current and proposed budgets must call for an amount equal or higher than 10% of the association's budget must be transferred into the reserves account. (If they do not, a reserve study is required, which takes time and money and willingness on the part of the association.)
2. No entity can own more than 1 unit in projects with 4 units or less; more than 2 units in projects with 5-20 units; more than 10% of the units in projects larger than 21 units.
3. No part of the association's income can come from things that are not essential to running an association (ie, they must be from regular or special assessments and may from cable fees; they can not be from the association running a business or renting space).
4. No more than 25% of the project can be commercial in nature.
5. The developer must have turned over control to the association.
6. The association is involved in a litigation that's not about foreclosure and there are monetary motivations at play. Or, if there's money involved, amounts are known and a title company is willing to insure the title anyway.
7. If the association allows rentals, no more than 49% of the units can be rented at the time of the application.
There are many other restrictions, but they are rather rare. Still, people who are thinking about getting a mortgage on a condo should speak to a loan officer early in the process. Better said, the loan officer should have provided condo documents early in the process of buying or refinancing a condo.
What Borrow Bob Should Do To Get His Condo Mortgage The Easy Way
The documents that reveal whether the condo project meets or does not meet the requirements for conforming conventional or FHA loans are:
3. Condo Rules and Regulations
4. Articles of incorporation.
Would-be borrowers (and anyone else) thinking about getting a mortgage on a condo should at the very least ask the person in charge of running the association questions that would reveal if the project meets the criteria listed above and get a copy of the budget and provide it, together with the answers from the person in charge of the association to their mortgage broker or bank.
And, as mentioned above, it makes no difference whether they are dealing with one mortgage broker or another. The best mortgage broker in Centennial, CO is just as bound by those rules as the best Denver, Aurora or Littleton mortgage broker, for instance.
Getting a mortgage loan on a condo is harder if the loan is FHA-insured; getting a mortgage on a condo is harder than getting a mortgage on some other kind of residential property. But there are things borrowers can do to reduce the difficulty: get a copy of the budget and the Association's contact information to their loan officer / mortgage broker early on.