Navigating Condominium Mortgages: Key Steps for New Construction Buyers
Navigating Condominium Mortgages: Key Steps for New Construction Buyers
Condominiums can be an excellent housing choice for people who want to buy an affordable home with less individual responsibility for maintenance, repairs, and landscaping. However, buyers interested in newly built condos must understand the specific steps required to secure a mortgage.
Mortgage Qualifications: Borrower and Project Requirements
While borrower qualifications—such as down payment, credit score, and income—are nearly identical for condos and single-family homes, the condominium project itself must also meet lender approvals. According to Jason Will, Vice President and National Condominium Manager for Wells Fargo Mortgage, “There are different types of project approvals”:
- FHA Loans: Insured by the Federal Housing Administration.
- VA Loans: Guaranteed by the U.S. Department of Veteran’s Affairs.
- Conforming Loans: Eligible for sale to Fannie Mae or Freddie Mac.
- Jumbo Loans: For larger loan amounts, with approvals specific to individual lenders.
Condo Characteristics: Meeting Approval Thresholds
Approval requirements vary by loan type and involve rigorous criteria. Dawn Bauman, Senior Vice President of Government Affairs at the Community Associations Institute, notes that examples include:
- Presale percentages of units by the builder.
- Limits on vacation/rental units and investor ownership.
- Reserve funds for maintenance and repairs.
- Physical, environmental, and insurance evaluations.
No Approval, No Loan
If a project lacks approval for a specific loan type, buyers cannot use that financing. “If the project isn’t FHA-certified, they can’t get an FHA-insured loan. Period,” Bauman emphasizes. Buyers may need larger down payments or alternative financing if approvals are pending, says Malcolm Hollensteiner, Director of Retail Lending Sales at TD Bank.
Patience and Preparation Are Key
Builders often pursue approvals early, but timelines can vary widely. David Ledford, Senior Vice President at the National Association of Home Builders, explains, “Sometimes it goes smoothly and quickly; other times it takes years.” Buyers should:
- Confirm the project’s approval status early in the process.
- Coordinate timelines for selling/leasing existing homes.
- Consider extended rate locks to hedge against interest rate hikes.
The Upside of Approvals
Project approvals benefit buyers by ensuring:
- Access to financing for themselves and future buyers.
- Financial stability of the condo association.
- Long-term viability of the property.
While challenges exist, well-qualified buyers who stay informed and flexible can successfully secure a new construction condo that meets their needs.
