Buying A Condo With An FHA, VA, Or Conventional Loan Mortgage Rates, Mortgage News and Strategy : The Mortgage Reports
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Similarly, this site shows condo projects that are eligible for VA financing. If the condo you’re looking at is on one of those lists, chances are it’s warrantable. For a condo to be warrantable, the condo project has to meet an extensive list of requirements laid out by Fannie Mae and Freddie Mac. For example, the condo can’t be part of a timeshare and it can’t be part of a houseboat project. A condominium can be worth it for the right home buyer, especially if they’re looking for a low-maintenance property with convenient amenities.
Before setting out to look for a condo, compare mortgage lenders, loan types and offers. There are many ways to finance a condo, so doing the legwork can help you uncover the best — and lowest-cost — option. Condo prices tend to be less than single-family home prices, so they might be more affordable to first-time homebuyers. However, condos have higher monthly costs and mortgage interest rates, plus more restrictions.
You may need a larger down payment
Whether you’re looking to ease into the responsibilities of homeownership, downsize or buy a rental property, a condominium could be a fit. A condo is an individual unit in a community of other units, typically managed by a homeowners association, or HOA, and can come with access to common spaces like a gym or pool. As with buying a single-family home, buying a condo can be a worthwhile investment, but there are key differences between the two. When living in a condo, if you’re part of a HOA, you’ll have to pay HOA dues. There could also be additional condo fees to access some of the shared amenities, like a community pool for example.
Your monthly payment amount will be greater if taxes and insurance premiums are included. At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. The listings that appear on this page are from companies from which this website receives compensation, which may impact how, where and in what order products appear. This table does not include all companies or all available products.
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The VA will then go through the paperwork and do its research to determine if the property meets the qualifications to be added to their list. It’s important to keep in mind that this process can take time, as the VA must complete its due diligence. If a condo is still non-warrantable when you sell, the unit will appeal to a smaller pool of homebuyers.
You might luck out with quiet neighbors or you might take out a 30-year mortgage and move in below an electric guitar player. Depending on your circumstances, living in a regular single-family home might work better for you. You tend to live in close proximity to your neighbors in a condo, and in many cases this fosters a sense of community. If you’re someone who wants to make new friends and live among potentially like-minded individuals, a condo might be a great choice. Not all condo neighborhoods will have a tight-knit community, though, so be sure to research any neighborhood before moving in. Both condos and single-family homes can be financed with a mortgage, so it's important to start your application process early – regardless of what type of home you decide to purchase.
FHA vs. conventional loans
They can also come with rules about how you use your private space. In a well-run building, these rules just keep people from getting in each other’s’ way. In a poorly-run building, these rules can interfere with your quality of life significantly. One of the best parts of living in an apartment is that you can simply call your landlord to fix anything that goes wrong instead of having to worry about it yourself. Condominiums share this benefit, as the building will handle many, if not all, repairs. Condominium buildings might offer pools, gyms, roof decks and many other options that households couldn’t afford on their own.
Because condos are individually owned units in a wider community building, lenders look at them a little differently than single-family homes. More occupants in a condominium complex mean more people are at risk of default. Plus, situations outside of the borrower's control – like a broken elevator or leaky roof – could require special assessments and cost the borrower more money as a result. While the mortgage process for a condo is similar to taking out a traditional mortgage, condo loans may have different or additional regulations established by the mortgage lender. Condo loans may also come with slightly higher interest rates. They can be riskier for mortgage lenders because of external factors like HOA rules and restrictions that are outside of the borrower’s control.
The lender looks at how many units the community has, for instance, the proportion of owner-occupied to tenant-occupied, as well as its financial footing and insurance coverage. Lenders also consider whether other owners in the community are current with their dues, and how many units are owned by a single entity. All of these factors have to check out in order for the lender to approve the loan. Lenders will consider a variety of factors as they evaluate whether to extend condo loan financing, ranging from any given building’s occupancy to its financial health.
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Things can get tricky fast here, especially because the terms are often used interchangeably. The land directly beneath the structure of most townhomes is considered part of the individual unit in terms of ownership too, which is important. It’s technically a type of ownership, though it is commonly used to refer to a building style, whether correct or not. A condo, short for condominium, is actually a Latin word that basically means joint ownership (con+dominium). It’s been a while since I’ve done a matchup, so let’s talk about an important one if you’re in the market to buy real estate.
For instance, if you put 20 percent down or less on a Fannie Mae loan for a single-family house or a condo, you will take a higher interest rate on the condo than the house. Often, because of high rental rates in condominium communities, these places get a bad reputation. The damage that can be done to a few units can affect the value of all the units around it. Because of this, the Department of Veteran Affairs requires communities on its approved list to have at least 50 percent of its units be occupied by their owners. It is possible, and you can still receive a no money down low-interest rate loan for your dream condo.
Now that you have an idea of what to expect when taking out a condo loan, keep these other considerations in mind when moving forward in the condo-buying process. For investment properties, at least 50% of the total units are owner-occupied . If you’re considering investing in a condo and renting it out, you’ll need a higher down payment, as well. To find out if a specific condo you’re interested in is warrantable, check to see if it shows up on approved lists, such as the one published by the U.S. If it is a PUD, it’s mostly treated like a single-family residence when it comes to mortgage loan financing.
That way, if you’re interested in purchasing a condo, you’ll feel more prepared to take on the process. Condo mortgages tend to have higher interest rates than loans for single-family homes by about 0.125% to 0.25%. That’s because Fannie Mae and Freddie Mac view condos as a riskier bet and, to compensate, they charge the lender an extra fee if you’re buying a condo and your loan-to-value ratio is over 75%. Lenders pass this fee on to you by charging slightly higher interest rates.
House benefits
Mainly, with a condo, you share ownership and financial responsibility with others. Many or all of the products here are from our partners that pay us a commission. But our editorial integrity ensures our experts’ opinions aren’t influenced by compensation.
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