Conventional mortgage condo requirements are strict as condos are riskier proposition for mortgage lenders. The reason? Lenders have to worry about condo associations and the owners or the other units. By conventional I mean the the kind that come with interest rates at the low end of the spectrum and no funny features. The inexpensive kind, that is.
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There are 15 conventional mortgage condo requirements. Each one capable of sinking a condo loan application.
Conventional Mortgage Condo Requirements – The Ones You’re More Likely To Encounter
1 Condo associations cannot own or operate businesses. All their income must come from fees earned from running the association.
2 There can be no current or pending law suits against the homeowners’ association, the project sponsor or developer that have to do with the project’s safety, structural soundness or habitability or functionality. Unless the amounts are small (10% of the budget for one year) or the insurance company is covering the costs.
3 The association’s rules Fannie Mae or Freddie Mac’s claims to take precedence over unpaid common expenses over 6 months. In other words, the association can recoup 6 months of unpaid expenses; months 7 and more go to Fannie or Freddie.
4 Condo projects cannot have one entity own more than
- 2 units in projects with 20 units
- or fewer than 20% of the units in projects with 21 or more units
5 Projects must be residential in nature. That means that no more than 35% of the projects is taken up by non-residential space.
6 At least 10% of the association’s budget goes to the reserves fund.
Conventional Mortgage Condo Requirements – The Ones You’re Less Likely to Encounter
1 Each unit owner must own 100% of the unit at all times, so no timeshares, no fractional or segmented ownership.
2 Developers cannot offer seller concessions or any other kind of financing (paying HOA fees, principal reduction, etc.) that exceed Fannie Mae or Freddie Mac’s rules on the matter (currently 3% of the sale price).
3 There must be be mandatory memberships fees to use recreational amenities, unless they are owned entirely by the homeowners association or a master association.
4 Projects must not be run as hotels or motels, even if each unit is owned entirely by a separate entity entirely.
5 Projects cannot have any kind of rules, conditions or restrictions that reduce / split unit ownership limits an owner’s ability to use their units and common areas.
6 Projects must be real estate projects… no houseboats and such allowed.
7 Projects must not be owned or operated as continuing care facilities.
8 Projects must meet the live-work requirements. That means they are zoned properly and do not reduce the residential feel of the project.
9 Each unit must be individually owned (each deed must reference only one unit) and each mortgage must cover one unit only.
Getting a Mortgage for a Condo
All these requirements mean that condo buyers who need a mortgage must ask to see the association’s budget and bylaws before they make an offer. That is, if they dislike headaches.
But, given the large number of condos associations in existence, it is not that hard to get a conventional mortgage on a condo.