Jim’s Mortgage Corner | The property

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FINANCING OPTIONS WHEN CONDO VS. CITY HOUSE

As the prices of single family homes continue to rise, I have received many requests for financing for a condominium or townhouse as they tend to be cheaper.

There are many reasons one option is better than the other. I am primarily going to focus on the different financing options. I highly recommend that you talk to your realtor to determine what might be best for you based on how long you plan to live in your new home, whether you plan to sell or rent it in the future, etc. As always, I recommend that borrowers contact their lender and they can provide you with many loan options available.

The biggest difference between a condominium and a townhouse is that you own land with a townhouse and it usually includes a small front and back yard. Because of this, condos tend to be cheaper as you don’t own the land.

Interest rates are generally higher for condominiums as they pose a higher level of risk to mortgage lenders. You can purchase a condominium with an FHA loan with a 3.5% down payment, but the condominium project must receive FHA approval. If the project has not been approved by the FHA, there are approaches by which the lender can request approval for the project and listing. Lenders can provide documentation to the FHA for approving individual condominium units, however the process can also be complex and time consuming. You can buy an apartment using a regular loan with a down payment of 10%. Depending on the condominium project, your lender may receive a waiver of the right to the condominium, which allows for a 5% down payment, but this is not the norm.

You can buy an apartment with a VA home loan, but it must also be approved by the Veterans Affairs Office. At least 50% of apartments must be owner-occupied, and less than 15% of apartment owners do not pay their HOA contributions. For newly built condominiums, at least 75% of the units must be sold. If they meet all of these requirements, there is a good chance that they are VA approved.

You can buy a condominium with USDA loan, but first it must be in a rural area approved by USDA. The condominium project must also be approved by another organization such as HUD, FHA, VA, Fannie Mae, or Freddie Mac.

Applying for a townhouse mortgage is similar to applying for a single family residence. Interest rates are similar, and in most cases, you can follow the same rules for townhouses as you do for single-family dwellings when it comes to financing.

FHA, VA and USDA loans require the borrower’s residence and are not used to purchase second homes or investment property.

Most people feel that they are more likely to get a permit for a cheaper condominium or townhouse compared to a single family residence. In a previous article, I mentioned that for every $ 10,000 added to your upfront payment, you will save approximately $ 50 per month on your payment. You can use this same simple formula to calculate the difference in a condominium or townhouse versus a single-family home with HOA contributions. If your HOA contributions are $ 150 a month, it’s like buying a single-family home without HOA contributions for an additional $ 30,000! For example, if you are allowed a $ 175,000 condominium mortgage, you may be eligible for single-family housing for $ 205,000 if the difference between HOA contributions is $ 150 per month.

I recommend that you contact your lender and they will provide you with many loan options available. Feel free to contact me if you have any further questions.

Branch Director, NMLS No. 1721861

Cherry Creek Mortgage, LLC, NMLS 3001



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