A condominium is a specific property type and the term can have a different meaning in different regions of the country. In Tucson, we see the term applied to a building with:
- Multiple-units
- Each unit is individually owned
- Each owner receives a recordable deed to the unit purchased, including the right to sell, mortgage, etc.,
- Owner of the unit has joint ownership of any common grounds, passageways, etc.
Since the term: “Condo” is generally understood to mean something like an apartment, we often see the title of a property project mislabeled. The only way we know for sure if a home is a condo or not is by reviewing the legal description as recorded with the county. That gives us the surest way of knowing if something is truly a condo, townhome or single family house.
The distinction is important for lending purposes. There are more hurdles to clear if a home is a condo. As with all loans, a mortgage lender will evaluate the borrower’s credit and financial status.The lender will also need to determine the value of the home is sufficient collateral for the loan. Additionally, on a condo, the lender must evaluate the financial strength of the condo’s homeowner’s association (HOA). Since much of the value is tied to the physical structure, which is maintained by the HOA for a condo, the lender needs to know there is sufficient resources for the upkeep. It is possible a borrower to have excellent credit and financial portfolio and not be able to obtain a mortgage because the HOA is unable to provide enough information to satisfy the lending guidelines
The type of loan and the purpose of buyers purchase will impact how much information is required to be verified.
- FHA and VA will only lend on previously approved projects
- There are only a small number of condos in Tucson approved or FHA or VA
- Conventional loans have more flexibility and allow for lenders to review the HOA if it hasn’t already been approved.
If using a conventional loan, the lender is required to complete a full or limited review on the property – A limited review has a much higher success rate – The determining factors of which review is needed are:
- Whether the home is used as a primary, secondary or investment home
- How much of down payment is being made.
- is the complex new or existing.
Financing on a condominium happens all the time and isn’t something to keep you from considering them as your next home purchase. Make sure to have a clear conversation with your lender and know the best path to approval. If a full review is needed, it would be better to get it done early in the process.
Contact us for additional information or any questions about the process.
