Financing Condos and Town Houses

Condos and town houses pose a few financing challenges that singlefamily homes don’t have. Namely:
When you apply for financing, the lender will add the condo fee to the payment and then run the ratios. For example, a $1,000 a month mortgage payment at 6 percent interest equals a $166,792 loan. But if you buy a condo with a $115 a month condo fee, your loan amount drops to $147,611. This means you can buy more of a single-family home on a given income than you can a condo. Conventional lenders generally prefer no more than 40 percent rentals in a project (the FHA currently says that 51 percent must be owner occupied). They’re so sticky on this that when you make application for a condo loan, you’ll most likely be given a form for the homeowners association to fill out verifying the percentage of rental units.
With new developments, conventional lenders like to see at least a one- to two-years track record and 50 percent of the units sold before they’ll make loans. To get around this situation, developers often arrange for financing with a lender who will warehouse (keep the loans in-house) the loans for a year or two before selling them on the secondary market.
This is another reason to pick your condo project carefully and look at its history and rentals to owner-occupied ratio. If the project has too many rentals, you may not be able to sell at any price if a buyer can’t get reasonable financing.