Maintaining a house can be very time consuming and expensive. The owner of a house is responsible for taking care of the whole property and its surroundings. Repairing and maintaining the various parts of a house require significantly more time and money than repairing and maintaining a condo. Condos are a great alternative for those who don’t wish to deal with the hassle of owning a house, but there are several aspects of buying a condo with a mortgage loan that are different from buying a house. The differences between buying a house and a condo with a mortgage loan are mostly related to the fees that you will have to pay and the qualification requirements.
Prices for condos have decreased back when the housing market crashed and are recovering slower than house prices, so this might be a perfect time to buy a condo. You will find cheaper condominiums, but unfortunately, lenders have tightened their lending requirements because the condo market is so weak. When buying a house, you’re the only one that has to be approved for a mortgage loan, but when buying a condo, the condominium association must be approved, too. If the association has financial problems, there is a big chance that your mortgage loan application will be denied.
What’s Different When Getting a Mortgage Loan for a Condo?
Condominium prices may be lower than house prices, but the process of buying a condo with a mortgage is a bit different than buying a house with a mortgage. There are several aspects that you should keep in mind before getting a mortgage loan for your condo:
- The association fees. When owning a condo, you are responsible for repairing and maintaining your unit, but keep in mind that the condo is part of a larger building that needs regular maintenance and repairs from time to time. The money needed for these repairs and maintenance work is raised by the condominium association. All condo owners will have to pay a monthly fee that goes into a fund to pay for maintenance, upkeep, repairs and other expenses. When finding out your debt-to-income ratio, your lender will also include the association fees in your monthly mortgage payment. Keep in mind that, over time, these association fees can increase, depending on how many repairs need to be done and on the cost of the materials.
- Who backs the mortgage loan. Before buying a condo, make sure that it is approved for Fannie Mae, Freddie Mac and Federal Housing Administration (FHA) mortgages. If the property is not approved, you might have to pay a much larger interest rate and down payment. The FHA allows you to buy a condo with a much smaller down payment than on a conventional mortgage loan, but the Federal Housing Administration also requires that less than 10 percent of the condos have the same owner if the building is newly built. Mortgages backed by Fannie Mae and Freddie Mac require a higher down payment than the FHA and charge extra if your down payment is less than 25 percent.
- Buying a non-warrantable condo. Condominiums that don’t qualify for Fannie Mae, Freddie Mac or Federal Housing Administration financing are called non-warrantable. Not being backed by the government makes these condos more expensive, with a higher interest rate and down payment, and much harder to find a mortgage lender willing to finance their purchase.
A condo is a good substitute for home buyers who find that owning a house involves too much work and cost. Condos are also cheaper than most single-family houses, but buying one using a mortgage loan is a little different than buying a house with one. However, a little research can go a long way and ensure that getting a mortgage loan for a condo can be a relatively easy process with no unpleasant surprises.