Getting a mortgage on an apartment is different from getting a mortgage on any other type of residential property: Apartments are more difficult.
They are harder because they are more dangerous. It’s riskier because lenders don’t have to worry about just two entities (the borrower and the property used as collateral); They have to worry about those + common areas, homeowners association and other unit owners.
And there is no different mortgage broker or lender loan officer that can do to change that.
Borrower will become bob looking for a centennial mortgage broker
Let’s say Borrower Bob wants to buy an apartment in Littleton, just south of Denver. Looking for a mortgage broker in littleton or one in centennial. Whichever one Bob chooses, his mortgage broker, to give him the best rate, will want to get him a matching conventional loan.
If that’s not possible, this Centennial Mortgage Broker (yes, we’re making Bob choose a Centennial Mortgage Broker: It’s got more good reviews on Yelp than the others plus I’ve named this section “Would-Be Borrower Bob looking for A “broker” centennial mortgage.”) would try to get an FHA loan for Bob before trying any other type of loan: they are cheaper (i.e. they come with lower interest rates).
Conventional matching loans are the ones that Fannie Mae or Freddie Mac would buy. FHA loans are loans that will be insured by the FHA.
The first thing to consider is that it’s much more difficult to get an FHA apartment approval than a traditional matching approval: the FHA will insure mortgages on units that are part of an approved project or if someone immediately approves the unit (takes time effort and can cost money too) and project approval is harder and it costs money to stay approved, so there are only a few approved projects left.
So, the first thing for people looking to buy or refinance a condominium unit is to determine whether or not they qualify for a matching conventional loan.
Or if the mortgage broker or lender they work with can do unsecured apartments. (Unsecurable apartments are how the foreclosure industry calls housing units that don’t fit Fannie Mae, Freddie Mac, or FHA standards.)
Subprime mortgage programs have more flexible eligibility criteria but still have eligibility criteria. Borrowers must ensure that their unwarranted apartment meets these criteria.
Here is the link to check if the condo project has been approved by the FHA: https://entp.hud.gov/idapp/html/condlook.cfm.
Bob’s Minefield for a mortgage at the Littleton Condo
Although the full criteria takes several pages, most apartment projects that are not Fannie Mae, Freddie Mac, and FHA-compliant do so because they do not meet one of the following seven requirements:
1. The existing and proposed budgets shall require an amount equal to or greater than 10% of the Association’s budget to be transferred to the Reserve Account. (If they do not, a back-up study is required, which takes time, money and desire on the part of the association).
2. No entity can own more than one unit in projects that contain 4 units or less. more than 2 units in 5-20 unit projects; More than 10% of units in projects larger than 21 units.
3. No part of the association’s income can come from things that are not essential to the running of the association (eg, it must be from regular or private assessments and possibly from cable fees; it cannot be from the association running a business or renting space).
4. No more than 25% of the project can be commercial in nature.
5. The developer must have handed over control to the association.
6. The association is involved in a lawsuit that is not related to foreclosure and there are financial motives at play. Or, if there is money involved, the amounts are known and the title company is willing to secure the title anyway.
7. If the association allows rentals, no more than 49% of the units can be rented at the time of application.
There are many other limitations, but they are rather rare. However, people who are considering taking out a mortgage on an apartment should speak to a loan officer early in the process. Best said, the loan officer should be provided with the apartment documentation early in the process of buying or refinancing the apartment.
What should bob the borrower do to get his mortgage the easy way
Documents that reveal whether or not a condo project meets the matching requirements for conventional or FHA loans are:
3. Apartment rules and regulations
4. Memorandum of Association.
Bob (and anyone else) considering a mortgage on an apartment should ask the person in charge of managing the association questions that will reveal whether the project meets the above criteria and obtain and submit a copy of the budget, along with the answers from the person in charge For the association to the mortgage broker or bank.
And as mentioned above, it makes no difference whether they are dealing with one mortgage broker or another. Best Mortgage Broker in Centennial, CO is just as abiding by these rules as Best Mortgage Broker in Denver, Aurora, or Littleton, for example.
Getting a mortgage on an apartment is the hardest if the loan is FHA-insured; Getting a mortgage on an apartment is more difficult than getting a mortgage on another type of residential property. But there are things borrowers can do to reduce the difficulty: Get a copy of the balance sheet and the association’s contact information for the loan officer/mortgage broker ahead of time.