If you’re considering buying a condo in downtown San Diego, you probably already know it can be a much more convenient choice than a single-family property. What this means is that you’ll have to make peace with several extra challenges along the way when it comes to qualifying for a mortgage. Condo loan requirements are much more stringent than those for conventional loans, and mortgage rates are usually higher as well. Also, the condo association will have to pass muster. Here are some of the most important points you’ll want to consider when it comes to financing a condominium.
Condo Financing Is Different
When you’re applying for a mortgage to purchase a condo, the bank will consider a few more factors than it would for a single-family home. In the case of a single-family home, the bank would simply appraise the home to determine its worth and ensure there’s a clean title. With a condo, the lender will need to consider the following factors:
- The documentation of the condo
- The percentage of owner-occupied units
- The condo association’s finances
This means there are additional hoops to jump through because it isn’t just the value and condition of the condo you’re buying that matters—the entire building and the condo association are also evaluated.
Condo Financing Has Different Costs
Condominium buyers usually encounter higher mortgage rates than borrowers who purchase single-family homes on similar terms. Mortgages for condominiums are often considered somewhat riskier loans than single-family home mortgages.
For conventional Fannie Mae mortgages, interest rates for condos typically run around an eighth to a quarter of a percent higher than those for single-family homes. Fannie Mae charges lenders 0.75 percent of the loan amount on any condo mortgage that has less than a 25 percent down payment, so lenders typically cover this by increasing the cost of the mortgage and/or requiring a larger down payment.
Strict Condo Financing Rules Have Loosened
While condo financing can be a bit harder to obtain than single-family home mortgages, you shouldn’t give up hope. During the foreclosure crisis, many condominium associations had financial difficulties because owners didn’t pay their fees. As a result, many lenders were wary of the risks associated with lending to condominium buyers. Lenders that did offer financing for condos imposed restrictions that were much more stringent than those imposed by Fannie Mae and Freddie Mac, and the banks also required much higher down payments.
Since then, lenders have eased these restrictions, and roughly 95 percent of all condominiums today are eligible for financing with mortgage insurance. People are often able to purchase condos with a down payment of only 5 percent, whereas in the years following the housing bust, many were required to make down payments of as much as 30 to 45 percent.
There Are More Financing Options
If your condo doesn’t meet the requirements for Fannie Mae and Freddie Mac loans, you can still find financing with options such as portfolio loans. Some lenders offer financing without requiring buyers to meet the same requirements as Fannie Mae and Freddie Mac, and the terms of these loans are comparable to those of more conventional loans.
When you’re getting ready to buy your condo, make sure to seek input from a real estate agent with expertise in the intricacies of financing real estate in downtown San Diego. The trustworthy professionals at 92101 Urban Living can offer you savvy advice based on their years of experience, and they’ll guide you through every step of the condo-buying process. Give one of our friendly agents a call today at 619-649-0368.