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As discussed previously in the HAS blog, for residential buyers in New York City there are three basic types of property available to purchase!
They are single family homes, condominiums and coops with each of the five boroughs typically possessing different ratios of each.
In Manhattan the mix is approximately 75% coop and 25% condo in addition to the very lucky and wealthy few who are in the market to buy a brownstone.
When it comes to getting a mortgage, in this case for a condo, Hallmark Abstract Service was fortunate to enlist the services of expert loan originator and author Tim Lucas who provides some of the basics for obtaining financing for this property type.
Note: If you live in New York State and after you successfully obtain financing for your purchase (or refinance), find out how to potentially save hundreds of dollars on closing costs at Hallmark Abstract Service here.
‘Navigate Condo Financing like a Pro’ by Tim Lucas
If you live in or near a bigger city such as New York, chances are you’ll consider buying a condominium instead of a single family home.
The advantages of a condo are clear. The cost is lower, maintenance is a breeze, and the location is drastically closer to the action than any affordable single family home.
However, a very important part of buying a condo is how you will finance it. Unless you’re paying cash, you’ll want to know these important rules that change based on the type of loan you apply for.
Buying a Condo with a Conventional Loan
A conventional loan is a great way to buy a condo if you have at least 10% down and have decent credit. Like all loan types, a condo complex must meet some requirements to be eligible for conventional financing:
All common areas (pools, parks, clubhouses) must be complete and owned by the unit owners/HOA.
51% of the units are occupied by the owners.
The HOA budget must be satisfactory to cover condo expenses and reserves.
90% of the units are sold
No single owner holds more than 10% of the units in the complex.
Adequate insurance coverage.
Conventional loans don’t have an approved/unapproved list like FHA and VA loans. If the condo complex meets the requirements, you’re good to go.
FHA Condo Financing
An FHA loan is an easy way to buy a condo, even if you have less than stellar credit and little money for a down payment.
The biggest hang-up when buying a condo with an FHA loan is finding a condo project that is approved by HUD, the overseer of the FHA loan program.
In 2010, HUD made some changes and kicked thousands of condo projects off the FHA approved list. Many of those projects never bothered to re-approve themselves and are still FHA ineligible.
You can see whether a condo project is eligible for FHA financing at FHA’s website. If the condo project is approved, it still needs to go through a check to make sure it still meets FHA’s requirements.
Here are a few of those standards:
50% of the units are occupied by the owner.
15% or less of the owners are late on their homeowner dues
There are no lawsuits against the condo.
The condo must have minimum insurance in place.
If a condo project meets all these requirements and is on the FHA approved list, you should have no problem using an FHA loan to buy a unit in the project.
VA Condo Financing
If you have military experience, you’ll want to check out a VA loan because the credit requirements are lenient, and no down payment is required, even for condos.
Like FHA, the VA has a list of approved condos. To find out if a specific condo complex is on the list, visit VA’s approved condo search tool.
To make it on the list, the condo must meet these requirements:
50% of the units are occupied by the owners.
Less than 15% of the unit owners are behind on their HOA dues.
At least 75% of the units must be sold, if it’s a new project.
Even if a condo meets these three requirements, pass on it if it’s not on the VA approved list. Before you can buy in the project, the HOA will have to submit documentation to the VA for the entire project to be placed on the approved list. That could take a lot longer than you’re willing to wait.
How Do I know if the Condo Meets Guidelines?
Representatives at the HOA are well-versed in the requirements for each loan type. The rules are not news to them. It’s their job to inform the lender the pertinent information about the condo.
Your lender will send a questionnaire to the HOA representative or management company, who will complete and return it.
Once your lender has received the completed, signed, and satisfactory questionnaire from the HOA, the condo is as good as yours.
Tim Lucas has over 12 years of experience as a loan originator, processor, and team manager. He writes for MyMortgageInsider.com, a blog that provides tips and advice for today’s home buyer. Visit Tim on Google+ and Twitter.
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