If you are thinking of purchasing a Florida condominium, it is important to know how condo loans work. Condo loans are often more complicated than standard home loans due to factors such as additional risk and regulations.

Types of Loans

Types of Florida condo loans include conventional loans, FHA & VA loans, and non-QM loans. These are the most common loans and usually have the lowest rates, though they also have stricter requirements. Because FHA loans are government-backed and can be used for buyers with lower credit scores or less of a down payment. Veterans and their families can be eligible for VA loans, which provide favourable terms with no down payment required.

Eligibility Criteria

Condo loans are higher risk and, as a result fall under heavier scrutiny by lenders. In addition to reviewing the borrower’s credit score, income, and debt-to-income ratio, lenders also keep an eye out for how well the condo association is doing financially and on the condition of the building itself. The Florida condo loans needs to have substantial reserves, a low percentage of delinquent units, and be properly insured.

Condo HOA guidelines

From there, it’s smooth sailing depending of course on the condo association and the rules that govern it. Lenders will look at the association budget, bylaws, and insurance. The healthy reserve budget demonstrates that the association has a cushion to pay for unexpected repairs and maintenance, making the lender feels more confident in their investment. However, lenders typically like to see less than 15% of units delinquent on dues.

Loan Process

The condo loan process is not completely different from the process of a single-family home; however, it does include some additional documentation. Standard financial docs – tax returns, bank statements, and employment verification from buyers. The lender will also require documents from the condo association, like the budget, insurance policies, and bylaws.

Challenges and Solutions

A big problem has been that FHA and VA loans, with super-strict approval requirements, don’t apply to many condos. For example, FHA needs the condo project to be on its approved list. This is where buyers can consider traditional loans, or look for FHA-approved condominiums.

Interest rates & Down Payments

Since condos are riskier loans than traditional single-family homes, interest rates for condo financing typically carry a slightly higher rate. These loans also have different down payment requirements; conventional loans typically require a minimum of 5-10%, and FHA loans go as low as 3.5%.  Non-QM loans are offered for condos that are non-warrantable.