Financing a condominium is somewhat different from buying a single-family home. For one, a condo mortgage typically comes with higher interest rates. Additionally, qualifying for a condo mortgage can be more challenging due to the extra underwriting requirements.

What is a condo?

A condominium, commonly known as a “condo,” is often a more affordable and lower-maintenance option compared to a single-family home. Condos are privately owned units within a community where owners share common areas. A key advantage of owning a condo is that the owner typically only needs to maintain the interior of their unit, while a property management company takes care of the exterior and common areas.

Condo vs. apartment

Apartments are usually rented for specific periods, while condominium units are owned by their residents. Condo owners are responsible for paying property taxes, whereas landlords cover the taxes for apartment buildings.

Condo buildings are often managed by a homeowners association (HOA), which oversees maintenance, amenities, and shared spaces such as lobbies, landscaping, and elevators. In contrast, tenants in apartments do not participate in an HOA, as they do not own the property.

Another significant difference is in financing: apartment renters pay a monthly fee to their landlord and do not build equity, whereas condo owners typically finance their purchase with a mortgage and build equity over time as they make mortgage payments.

Can you finance a condo?

Financing a condominium is largely similar to financing a single-family home. You’ll need to save for a down payment and go through the loan application process. Condo buyers can access the same types of loans as single-family homebuyers, including conventional, FHA, VA, and USDA loans, though there may be less availability in some markets.

Despite the similarity in loan options, the process for obtaining a mortgage for a condo can differ.

Condo mortgage vs. other mortgage types

When financing a condo, there are a few key differences compared to other types of mortgages:

  • Higher Interest Rates: Condo loans generally come with slightly higher interest rates. Steve Nakash, managing director at FBC Mortgage in Denver, notes, “Rates are typically higher by 0.125 percent to 0.25 percent. This is due to the added risk from restrictions or assessments imposed by the condo’s homeowners association (HOA) or condo association, which are beyond the borrower’s control.”
  • Additional Documentation: Lenders require extra documentation from the condo association, HOA, or management company. This can include a questionnaire about the condo project, details on the proportion of owner-occupied versus tenant-occupied units, and information on how many units are owned by a single entity. A copy of the condo association’s master insurance policy may also be necessary. “The lender needs to approve both the buyer and the condo project,” explains Nakash.
  • Vetting of the Condo Project: The condo project itself must meet certain lender standards. For example, lending guidelines generally state that no more than 15 percent of unit owners can be behind on dues, and a single investor cannot own more than 10 percent of the units. Additionally, the condo building must allocate less than 35 percent of its space to commercial use, as a significant commercial presence can be viewed as a risk. “Lenders consider a large portion of income from commercial tenants to be risky,” says Jeffrey Loyd, account executive at Luminaries AI and former principal at Mortgage Acuity.
  • Insurance Requirements: The condo must meet specific insurance coverage standards and not be involved in litigation that could result in financial loss to the condo association.

In some cases, a full review of the condo’s financial and legal documents may be required, including budget reports and a Covenants, Conditions, and Restrictions (CC&R) document.

How to get a condo mortgage loan

To boost your chances of securing condo financing and successfully purchasing a condo, consider these tips:

  • Research Condo Properties Thoroughly: “Ensure you’re looking at properties in well-managed, financially sound condo associations with a high percentage of owner-occupants,” advises Loyd.
  • Explore Financing Options and Loan Types: “Be aware of the specific loan type you’re pursuing, as some loans may require the condo project to be approved by entities like the FHA or VA,” Phillips suggests.
  • Save for a Larger Down Payment: A larger down payment can make you appear less risky to lenders, potentially leading to a better interest rate and improved approval chances.
  • Anticipate Higher Closing Costs and Extended Timelines: “You’ll need to cover costs for documents from the condo management, such as the condo questionnaire, financial statements, and insurance binder, which could add a couple of hundred dollars to your closing expenses,” Loyd explains. “Additionally, the involvement of the condo association and its insurance company may extend the closing process, often taking 30 days or more.”

Condo mortgage requirements

To qualify for condo financing, you need to meet specific requirements based on the type of mortgage you’re seeking. Here’s an overview of the various condo mortgage eligibility criteria, as explained by Orlando Miner, principal of Miner Capital Funding in St. Louis.

Conventional loan

  • Minimum down payment: 3 to 5 percent
  • Minimum credit score: 620
  • Debt-to-income (DTI) ratio: No more than 36 percent
  • Condo unit must be your primary residence

FHA loan

You can find FHA-approved condos on the U.S. Department of Housing and Urban Development (HUD) website. To qualify for an FHA loan, the requirements are:

  • Minimum down payment of 3.5 percent with a credit score of 580 or higher
  • Debt-to-income (DTI) ratio of no more than 50 percent
  • Condo unit must be your primary residence and meet FHA’s minimum property requirements

Esther Phillips, Senior Vice President and Director of Sales at Key Mortgage Services, notes, “The FHA requires each project to be reviewed and approved by HUD or an authorized institution. There is also a spot approval process for individual units, but it requires the same level of information and documentation as for full project approvals.”

VA loan

To qualify for a VA loan for a condo, you must meet the following criteria:

  • Be an active military member, veteran, or eligible surviving spouse
  • No down payment required
  • No minimum credit score required
  • No maximum debt-to-income (DTI) ratio; however, if your DTI ratio exceeds 41 percent, you will need other compensating factors, such as a higher credit score
  • The condo unit must be your primary residence

“The VA has its own approval process with requirements similar to those for FHA and conventional financing,” says Phillips. “However, unlike FHA, the VA does not allow for single-unit approvals; the entire condo project must be reviewed and approved.”

You can find VA-approved condos in your state using the U.S. Department of Veterans Affairs (VA) search tool. Simply select “Approved” and choose your state to view a list of eligible projects.

USDA loan

  • The property must be located in a rural area eligible as defined by the U.S. Department of Agriculture (USDA).
  • No down payment is required.
  • There is no minimum credit score requirement.
  • The debt-to-income (DTI) ratio must not exceed 41 percent.
  • The condo unit must be used as your primary residence.

Tips for buying a condo

If you’re considering buying a condo, there are several key factors to keep in mind:

“Buying a condo is similar to purchasing any other residential property, but there are some important differences,” says Nick Wemyss, a realtor at Intero Real Estate Services.

“For instance, there may be restrictions on interior renovations and more stringent rules on exterior modifications,” Wemyss notes. If you’re looking at a condo that requires updates, make sure you understand what renovations are permitted before making an offer.

Since most condos are part of a homeowners association (HOA), it’s crucial to assess the HOA’s financial health. A struggling HOA could result in unexpected special assessments, which could increase your monthly dues.

Working with a real estate agent who specializes in condo sales can be a significant advantage.

“A realtor with expertise in condo transactions can help buyers make well-informed decisions about their purchase,” says Wemyss.