I am starting to see more contracts on condominiums so thought a little refresher on things to watch for would be good information to share with my realtors.
First, a townhome has no special requirements- it is considered a single family residence and is treated just like a regular home.
How can you tell if a property is a townhome vs. a condominium? One way is to look at the legal description- in most cases, a townhome has lot/block legal and a condo will show “unit __” of “Building ___” or on tax records it will show style as being condo . But this is not always the case. The next step would be to have title company pull title and docs to see how it was recorded.
If it is determined the property is a condominium, then here are the important things you need to be aware of:
Condominiums are considered high risk properties because the condition and value depend as much on the neighbors as the owner. For this reason, owner occupancy is very important. This means how many owners actually live on site vs. those that are using the condo as an investment or second home.
Different types of loans have different requirements:
If the borrower is putting down at least 20% so there is no mortgage insurance required, then you can usually get a conventional loan.
If the borrower is putting down less than 20% so mortgage insurance is required, then owner occupancy must be at least 75%
FHA and VA:
The government rules state that the condo association must be on the approved list for either FHA or VA before you may do a loan for them. The approved lists are available online. If the property is not shown as approved already, then it can be submitted to FHA or VA for approval. It takes about 6 weeks to get a response and during that time, you cannot order an appraisal or do any other property related work on the file because a case number cannot be issued if the property is not on the approved list.
To get a property approved they require:
1. Owner occupancy of at least 50%
2. Property cannot be involved in any lawsuits
3. Past dues on assessment cannot exceed 15%
4. Other documentation based on their current guidelie4ns
I have managed to get 3 properties added to the approved list in the last 2 years so I know how to get it done. If you have a borrower who is interested in condominiums, check with me first so we can determine if the borrower is qualified, the property is qualified or if we can get the property qualified based on occupancy and past due percentages. Then we can evaluate the time needed to close and if the HOA is willing to work with us to provide the required information. A little time and effort upfront doing the research on the property can save some disappointment later.