Why Condos are Tougher to Finance

Condos - Private Money Loans in California - Private Money Loans in Santa Rosa, CA

Are you looking to purchase or refinance a condominium in the near future?

If so, there are a few things you should know about condos that will make it harder to qualify for a loan compared to a single family home.  This article explains some of lending challenges that come with condominiums and how you can avoid potential delays in your loan process.

Condos vs. Townhouses – A Quick Overview

Condos are treated differently than single family homes and townhomes. The easiest way to describe the difference is that a single family home is one owner, one lot. You own the land and the home on it.

The same goes for townhouses.

However, since townhouses are normally ‘attached’, they may share a common wall with another unit. This means you would own the property in front and back of your unit.

With condos, you own the rights to the space within your individual unit – plus you share an ownership interest for common areas with the other owners of the condominium complex. The common areas are normally a parking lot, landscaping, pool, clubhouse, etc.

Here’s the definition from the California Bureau of Real Estate:


An estate in real property wherein there is an undivided interest in common in a portion of real property coupled with a separate interest in space called a unit, the boundaries of which are described on a recorded final map, parcel map or condominium plan.

The areas within the boundaries may be filled with air, earth, or water or any combination and need not be attached to land except by easements for access and support.

Homeowners Associations + Property Management Companies = More Paperwork

When there is a homeowner association involved in a real estate transaction, it creates extra steps and documentation that lenders will review before making a final decision to lend.

Here are some of the extra documents you can expect your lender to request:

  • Covenants, Conditions, and Restrictions (CC&R’s)
  • Homeowners Association (HOA) Questionnaire
  • By-laws
  • HOA Budget and Financial Statement
  • Evidence of Master Insurance Policies

*Your real estate agent or loan officer should be able to explain what all that stuff is. Some HOA’s also charge anywhere from $75 – $200 to provide all of this documentation to you.

HOA Delinquencies

Check this out… remember the housing market crash of 2008?

Remember how many short sales and foreclosures took place?  How about the vacant bank-owned (REO) properties that just sat there for months – or years?

It’s unfortunate, but there were many condo units that had their HOA payments go into delinquency. I saw this with families who fell into hard financial times and were trying to short sell their property.

Overall, this impacts the financial position of the Homeowners Association. Your mortgage lender may want to know how many condo units are currently delinquent. This will likely be part of the HOA paperwork as mentioned above.

Owner Occupancy Rates

Conventional mortgage loans and FHA loans have restrictions on how many units within the complex are occupied by the property owners and how many are occupied by tenants. This is known as the occupancy rate.

Most traditional home loan programs require at least 51% of the total units to be owner-occupied. (Or a maximum of 49% occupied by tenants)

The guidelines and requirements can change from time to time, so be sure to speak with your favorite mortgage loan officer about the current rules.

FHA-Approved Condominium Projects

All condo projects are not eligible for FHA financing. This will limit the type of home loan you can get for purchasing or refinancing a condominium.

You will need to make sure the condo project is currently approved.  The approvals have expiration dates and some condominium complexes don’t get recertified for FHA Approval.

Here is a link to search for FHA-approved condos:


Possible HOA Litigation

There is always a potential for pending litigation on condominiums.  There can be different reasons for lawsuits involving the homeowners association. Some may be structural and related to the property itself, while others can be liability issues such as somebody slipping and falling in the parking lot.

The bottom line is that a condo complex with pending litigation will be harder to get a loan on.

Many conventional mortgage lenders and local banks may not allow it, but it’s certainly worth looking into. The type of litigation can be the difference between getting your loan request approved or not.

Just make sure you address this issue with your real estate agent and loan officer as early as possible to avoid any potential delays.

Condos are Still an Excellent Choice

All in all, condos are the affordable solution for many first time home buyers and beginning real estate investors. Sure, you’re not going to get the same square footage and land that a single family home can offer, but the price points are generally lower.  Of course, this all depends on location, location, location.

I hope this information is helpful in helping you find the right property and loan in the near future.

If you come across any issues in financing a condo through a conventional lender, we’ll be happy to review your scenario for a private money loan. In most cases, we won’t need all of the standard condo docs and requirements to get your condo loan approved and funded – as long as the deal makes sense.

– Chris

Want to learn more about private money loans in California? The links below will help you save time, money, and stress…

Get a Copy of Your Free E-Book: “How to Get Quick Funding When Banks Won’t Lend”

Private Money 101 Articles

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