Getting a mortgage for a condominium is not the same as getting a mortgage for a single-family home.
A typical condo loan will have tougher requirements and greater expenses than a home loan for the same price as a freestanding house.
What Makes Condo Mortgages Unique?
Mortgages for condo units are, in general, more expensive than mortgages for single-family residences.
This is because the value of a condo unit is subject to extra risk variables, many of which are beyond the borrower’s control.
Fannie Mae and Freddie Mac have made it more difficult for people to get conventional condo loans because of the risks they face.
Minimum Mortgage Requirements for Condominiums vs. Single-Family Units:
Down Payment 25% 20%
Interest Rate Higher rate due to 0.75% lender fee –
Approval Based On… Borrower and condo association Borrower onl
The borrower and the condo associationCondominium association and borrowerBorrower alone
A condo mortgage will require a larger down payment and have a higher interest rate than a standard house at the same price.
Condo loans carry a higher interest rate because their value is determined by factors other than the borrower’s financials.
If the condo association as a whole is having financial difficulties, every unit in the building may lose value when owners default and condo fees are not paid.
Because condo projects that qualify for conventional mortgages must meet certain standards set by Fannie Mae and Freddie Mac, they must also meet certain rules.
Existing Condo Projects and Conventional Loan Eligibility Guidelines
No single owner owns more than 10% of all units.
Association invests 10% of its annual revenue in long-term reserves.
Commercial or non-residential space accounts for no more than 25% of total square footage.
Lenders will generally refuse to finance the acquisition of condo units if the project as a whole appears to be a risky investment.
Because there is greater vacancy and fewer owners in the project, each unit pays a larger share of the association dues, making the project more likely to fail if a few owners default.
Lenders also look at the condo association’s financial structure and history to see if there are any indicators of difficulty on the horizon.
For freshly constructed or refurbished projects, these requirements are a little more lenient.
You have no control over these qualities, which are established by property owners, management companies, and condo organizations.
As a prospective owner, you can’t do much to improve them except look for a unit in a different development.
If you can’t get a traditional condo loan because the project you want to buy doesn’t meet the above criteria, you can look for a private lender that will give you a non-conventional mortgage at a much higher rate.
However, you should be careful about investing in any business that doesn’t meet these basic rules.
Fannie Mae, Freddie Mac, and the Federal Housing Administration all have slightly different requirements, with the FHA having the most stringent condo loan requirements.
Obtaining an FHA loan for a condo helps you to minimize the amount of payment you need to put down, but you must first consult the Department of Housing and Urban Development’s list of HUD-approved condo projects.
Another thing to keep in mind is that all FHA loans require an upfront payment for mortgage insurance, which reduces some of the benefits of the low down payment,
Mortgage Rates on Condos
We acquired online estimates from lenders who provide both to see how much higher interest rates go for a condo loan compared to a standard mortgage.
For both loan types, we set a purchase price of $200,000 and a 20% down payment.
Single-Family Homes vs. Condos: 30-Year Fixed Rate Mortgages
Condo Single-Family Condo Single-Family
Mortgage Rate 4.13% 3.88% 4.13% 4.00%
APR 4.17% 3.95% 4.20% 4.06%
Discount Points -0.25 0.13 0.00 0.00
Monthly P+I $775 $752 $775 $764
According to online estimates from Chase Bank and Wells Fargo, condo mortgage rates were 13 to 25 basis points higher than single-family home loan rates, excluding the effect of mortgage discount points.
Although the monthly payment difference may appear insignificant, keep in mind that condo association dues are a required part of your cost.
These dues are around $200 per month on average.
Although some single-family homes have similar homeowner’s association (HOA) fees, they are still an unnecessary expense.
Condo Mortgage Payment Calculator
The biggest difference between calculating a condo payment and calculating a conventional mortgage payment is the addition of monthly dues levied by your condo association.
If you’re getting a condo loan with less than a 20% down payment, you’ll also have to consider mortgage insurance premiums.
Monthly Costs of a Condo Mortgage Example
Mortgage Insurance $133
Condo Insurance $250
Association Dues $200
Property Taxes $333
While the price of your mortgage will undoubtedly make up the majority of your monthly condo expenses, there are other costs to consider when determining an appropriate price point.
The scenario we used implies a $200,000 house with a 10% down payment, which necessitates the payment of a mortgage insurance premium.
While putting down at least 20% is costly, it will completely eliminate the monthly fee.
However, you’ll need condo insurance to safeguard your valuables as well as any external elements (such as windows) that aren’t covered by your condo association’s master insurance policy.
The extent to which the master insurance policy is comprehensive will affect your condo insurance premium, so get that information before you go shopping for your personal insurance.