Deciphering the Condo Purchase
Buying the traditional single family home today is a challenge in itself, but when buying a condo, you enter a world with verbiage and guidelines of its own. The characteristics of a condominium are obvious to the eye in that they are located in large multifamily developments, attached to each other sharing common grounds and amenities. But what of the unseen is it that truly dictates lending rules? What are the hidden facets driving the difference in the developments?
There are two types of developments; warrantable condominiums, which are insured by Fannie Mae and typically sold in the secondary market, and non-warrantable condominiums, which are typically held and serviced within a lender’s portfolio. Each has its own set of lending terms, although their guidelines are similar once the distinction is made. There is an additional type condominium known as the condotel which is non-warrantable as well and has its own lending terms.
You may wonder how this is determined. Every time a contract is written on a condo unit, the lender provides a questionnaire to be completed by the condominium owners’ association. Information provided on this document is used to determine if the development is warrantable or non-warrantable. Many times the lender has already funded a loan, or the Realtor has previously sold in a development, and each has a general idea as to whether the development is insurable (warrantable) or not.
Once the determination is made as to whether a condo is warrantable or non-warrantable, the purpose of the transaction be determined. Is the purchase for a primary home, second home or is it an investment property? Each has its own requirements as loan terms.
Warrantable loans, looked upon as less risky as they are insured by Fannie Mae, typically require 10% down for primary home purchases, 15% down for second homes and 20% down on investment properties. Rates will vary depending on the loan term (i.e. 30-year or 15-year) and whether fixed or adjustable.
Non-warrantable condo loans are riskier and are typically funded by lenders who will be holding the loan within their own portfolios. These loans ordinarily require higher down payments than warrantable condo loans and often have shorter terms. Down payments range between 25% to 45% down depending on the purpose of the loan. Because terms may vary significantly between lenders is suggested that the consumer always compare available rates and terms.
Finally, the condotel is a condo that is managed like a hotel (i.e. can be booked by walking into the development, typically has a front desk, allows for nightly rentals and has housekeeping on the property). These loans have even greater down payment requirements – generally 30% down for residential and 45% down payment for investment properties.
InterLinc Mortgage Services, LLC.
8317 Front Beach Rd, Suite 37-C | Panama City Beach, FL 32407
Branch NMLS# 1204933
InterLinc Mortgage Services, LLC. NMLS ID: 205696. Florida Mortgage Lender Servicer License # MLD944. InterLinc is an Equal Housing Lender. DISCLAIMER: This is not a commitment to lend. Credit and collateral are subject to approval. Other restrictions may apply. Programs, rates, terms and conditions are subject to change without notice.