If you’re looking to buy a home, 2019 might be the year for you. All indications point to the housing market slowing down and shifting from a sellers’ market to a buyers’ market.
Condos are a great option for homeowners as they minimize the amount of maintenance that needs to be done, leaving all of the major repairs to the HOA. Not to mention, your monthly HOA fees almost always include landscaping, snow removal, and other property maintenance.
A condo might just be your dream home!
There are some differences between a condo mortgage and a mortgage for a single-family home, so keep reading to learn more.
Preparing for a Mortgage
As with any mortgage, you’ll want to make sure your credit is in shape. Get your credit report, make sure it is accurate, and fix any errors or discrepancies. Try to pay down your debt, if possible, and save up some money for a down payment.
When you’re getting close to applying for the mortgage, don’t make any big purchases. Certainly, hold off on any purchases once you’ve locked in a mortgage rate and the lender has run your credit.
They’ll expect that your credit stays pretty much the same once they approve your rate.
Getting a Condo Mortgage: What You Need to Know
There are some differences between condo mortgages and a mortgage for a single-family home.
1. The Value of the Condo
Condo values consider the value of the entire property as a whole. Whether that be a high rise building or smaller condo community, your lender is going to look at the value of the entire property, not just your unit.
The lender may look at the homeowner’s association budget and financials, the amenities provided, and what percentage of the condos are sold and what percent are rented by the HOA or other property management association.
The lender will also investigate whether the HOA or builder has litigation pending against it, as this might impact the value of the property in the future.
2. FHA Mortgage Loan
If you want to get an FHA loan, which comes with a lower (or no) down payment, the rules for buying a condo are much more stringent than if you were buying a house.
FHA rules require that a certain percentage of the units are owner-occupied, time limits on when the conversion to condos occurred (if it’s an existing building that was transformed into condos), or how long ago the property was built. It is often difficult to get an FHA loan for a condo.
3. Conventional Mortgage Loan
Your best bet for a condo mortgage is typically a conventional loan.
While conventional loan might not offer a zero down payment like FHA loans, you don’t have to pay mortgage insurance for the life of the loan like you do with FHA loans and you tend to get a better interest rate.
One downside of a conventional loan, however, is that the credit score requirements are typically higher.
4. Closing Costs
The closing costs for FHA and conventional loans are often the same, although the appraisal for an FHA loan is a bit more involved and is often more expensive.
Get more closing cost info here to learn about what’s included in your closing costs and how much you can expect to pay.
The Bottom Line
If you’re looking for a maintenance-free home, a condo is a smart option. It’s ideal for retirees or empty-nesters, single people, small families, or a couple.
Educate yourself on the condo mortgage process and shop around for the best interest rates.