Condo Buying? You Gotta Know this First

Condominium Purchases - There are Rules!

There is a uniqueness to the condominium purchase that affects Builders, Sellers, and Borrowers alike. Here are some questions, answers, and considerations...

Homeowners Insurance: This is covered by the Condo Association's master policy. Even in small, two-unit condominium associations (yes, they exist) the amount of the Fees, or Dues, must at least cover the costs of insurance to the structure per lender standards. Otherwise, borrowers do not need homeowner's insurance as the condo is owned by the association.

This said, be aware the condo owner is responsible for everything inside his/her unit's perimeter walls. Just like it is a wise choice in SFR homeownership, getting content insurance - akin to renter's insurance in scope - is a personal necessity. When calculating those DTI (debt-to-income) ratios, homeowner's insurance is not added as a factor (but association dues are).

Condo Association Dues: These are fees charged to the condominium owners on a per unit basis. These fees/dues cover the cost of structure insurance and maintenance of the condo grounds (mowing in the summer - snow clearance in the winter, for example).

The fees need to be adequate to consider a few unforeseeable events (wear and tear, landscaping, roof repair, etc) and for other common areas available to all residents/owners. If your condo maintains a pool and/or a workout club, your fees will be higher than associations without these.

And the association dues must cover the master insurance policy, too.

***Association fees are always figured into your DTI ratios.***

Other Considerations: Lenders also consider other factors when making a mortgage investment decision. With new construction, traditionally 75% of the units must be presold before any closings can take place. So if you are looking at a 40-unit condo, 30 must be presold for you to close on yours.

(There are very special exceptions to these rules - and Capital Mortgage Advisors has access to these variances and investors - lenders - that enable numbers as low as 30% presell. We are lowering that number daily as we beat the bushes for better sources)

Rental units can be a serious issue to lenders. There must be a large percentage of owner-occupied units - usually 75% - to 90% to allow conventional funding. The lenders don't want to be involved in glorified apartments called condos - historically speaking, it's a bad risk for them.

Now comes the issue of Warrantable vs Non-warrantable condominiums. In a nutshell, a Warrantable Condo has been run by the Association for at least 2 years and is mostly owner-occupied. It is site built and NOT a conversion. The interest rates and terms are best on Warrantable condos as they are underwritten by Fannie Mae. The borrowing process is smoother.

Non-Warrantable condos include recent conversions (from apartments), developer-run or unit-owner (association) run for less than two years. Loans are tougher to get - mostly paperwork issues - and terms can be shorter and/or rates higher.

You'll hear the terms Type I, Type II and Type III: Lender stuff that qualifies the property. I've included a table below that outlines Warrantable and Non-Warrantable as well as "Types". It's a snoozer, but relevant and informative.

(Please note, however, that the Mortgage Experts at Capital Mortgage Advisors have some terrific financing programs that can shame the so-called competition, including great investment <non-owner occupied> loans that can sweeten your deal!)

Thanks for contacting us about your condo needs.

We have a significant variety of condominium financing programs that are designed to smooth out the finance transaction.

By providing for the specific needs of Builders, Sellers, and Buyers when dealing with the regulations and lending guidelines for these unique homes, we have the tools and knowledge to help all parties reach their ultimate goal - a completed stress-free sale.

Please explore our website, grab some free information, and then contact us via email or 608-831-HOME (4663) with any questions you may have. Thanks.

Condo Types and Definitions Condominium Projects are Grouped into Three Areas Outlined Below Type I: NON-WARRANTABLE Developer’s control of the homeowner’s association has not yet terminated. Project may be subject to phasing or add-ons, which have not yet been completed. All common elements and amenities must be fully installed, completed or in operation. 70% of the units in the entire development must have been sold and/or legally obligated to close. 70% of all units in the entire development must have been sold to owner occupants. Maximum single entity ownership, 10% Type II: NON-WARRANTABLE Recent or current condominium conversion (from apartments.) Homeowner’s association has been controlled by the unit owners (other than the developer) for less than two years. Project is not subject to phasing or add-ons which have not yet been completed. All common elements and amenities are fully installed, completed and in operation. 70% of the units in the entire development must have been sold and/or legally obligated to close. 70% of the units in the entire development must have been sold to owner occupants. Maximum single entity ownership, 10% Type III: WARRANTABLE Homeowners Association has been controlled by unit owners (other than developer) for at least two years. Project is not subject to add-ons. All common amenities are fully insured, completed, and in operation. 90 % of all units have been sold (owner –occupancy of at least 60%). Maximum single entity ownership, 10%