Compare condo mortgage rates

How condo mortgages work

Condo mortgages carry a higher risk than traditional mortgages. Because a condo’s value isn’t based solely on a single unit, but rather the entire development, including vacancy rates and owners staying current on their fees — lenders have more to lose if the condo development isn’t financially healthy and values drop.

To compensate for the increased risk, lenders charge more in interest rates and fees for condo mortgages than mortgages for family homes. On top of that, you’ll be on the hook for condo fees to cover maintenance.

Types of condo mortgages

Condo mortgages are available in four types:

• Conventional loan. A non-government backed mortgage available with either a fixed or adjustable rate. Terms typically range from 15 to 30 years, with down payments as low as 3% depending on the loan.
• FHA loan. FHA loans are backed by the Federal Housing Authority (FHA) and have less stringent credit requirements than conventional loans. However, FHA rules are stricter for condos than family homes.
• VA loan. For veterans and their eligible spouses, VA loans are backed by the federal government and have more lenient lending requirements than either FHA or conventional loans. VA loans require 0% down, although you’ll pay a VA funding fee.
• USDA loan. U.S. Department of Agriculture (USDA) loans are available for properties in certain rural areas. USDA loans are best for low-income borrowers with poor credit who may not qualify for another type of loan.

Condo mortgages vs. family home mortgages

Here’s a look at the key differences between condo and family mortgage requirements.

Example: Condo monthly ownership costs

These figures are based on a $355,700 condo with 20% down and a 6.5% interest rate mortgage. This is the average cost of a condo in mid-2022 according to the National Association of Realtors (NAR).

Example: Condo monthly ownership costs

Condo loan restrictions and requirements

The exact regulations and restrictions for condo loans vary by lender, but expect to see requirements surrounding:

• Down payment. Condos often require a higher down payment than a house, though the exact amount varies by lender.
• Homeowners association. The homeowners association likely has to meet certain requirements, such as putting aside 10% or more of revenue for future building repairs.
• Other tenants. Many lenders won’t finance a mortgage if a large percentage of residents in the building are behind on their homeowners association dues or if too many units are rented out and/or owned by a single person or corporation.
• Limits to exposure. Some large lenders limit their exposure to individual developments. For example, once a lender has funded a certain percentage of purchases in a new complex, it may refuse to offer loans for any more condos in the same complex.
• Property use. Some lenders will only finance loans for apartments designed for residential use. Properties that are managed as part of a hotel or resort, for example, may not qualify for a loan.

Banks and credit unions regularly sell loans to Freddie Mac or Fannie Mae. But in order to do that, the condo needs to be “warrantable,” by meeting strict requirements. That means that certain condos may be hard to finance through a traditional lender.

What should I do if my condo mortgage application is denied?

Get in touch with the lender and find out why your application was denied. If you are denied because your down payment was too small or your credit was too low, you may have better luck if you take some time to work on it before reapplying.

If you are denied because your condo didn’t meet certain requirements, you may need to consider a different condo.

Bottom line

Buying a new condo can be a bit trickier than buying a house, but if you save up for a down payment and find an approved unit, it’s definitely doable. To get the best deal, compare the best mortgage lenders before getting started.