The price of a condo primarily depends on its location. If cash is not available, a mortgage can do the work for you. Financing a unit is relatively more tedious than that of the usual single detached house; it has to do with the whole condominium project being eligible for conforming or government financing.
How do you go about buying a condominium unit using a Fannie Mae or Freddie Mac mortgage, or one backed by the USDA, VA or FHA?
Is your condo on the eligible list?
The first step that will more or less determine the course of your loan application is to check the database maintained by each of these entities:
For a condo development to be eligible for USDA financing, it must meet either the HUD/FHA, VA, or Fannie/Freddie requirements.
In the event that your desired unit is not on the list of approved projects, the following may be applicable to you:
- Under Fannie Mae guidelines, a lender may submit the building for eligibility review to the Project Eligibility Review Servicer or PERS. The condo may be subjected to a limited or full review, the latter being stricter. If approved, a condo’s eligibility can last up to 24 months.
- To determine a condominium unit’s eligibility for Freddie Mac financing, the lender will submit it for a streamlined review.
- The homeowner’s association (HOA) may request the FHA/HUD for approval of the condo project. Spot approval of condos, i.e. the unit being approved even when the project is not HUD-approved, has been eliminated. Like Fannie Mae, the certification has an expiration date and is given to those who meet FHA’s property requirements.
- Likewise, the HOA concerned may seek approval of the condo project from the VA’s Regional Center by submitting pertinent organizational documents and meeting owner-occupancy percentage, among other requirements.
- Only when condo projects have obtained approval from Fannie/Freddie or HUD/FHA will they be eligible for USDA condo financing.
You can try to ask the HOA of your desired unit to get certification from either of the above agencies that will back your loan. Approval is not guaranteed and could take a while. The process can be burdensome to the HOA (explains why not all condos are approved) and even to the lender who will prepare your loan package. Against this backdrop, set your expectations for a longer timeline to get a mortgage for your condo.
When a condominium project does not meet standards set by Fannie/Freddie, HUD/FHA and VA for financing, it becomes non-warrantable. Timeshare properties, condotels, and houseboat projects are examples of condos not eligible for neither financing.