Condos

Financing a Condo Is Now Easier Than Ever

As market forces continue to conspire to make available homes for purchase scarce in many of the nation’s biggest housing markets, the popularity of condo development has boomed again, and Portland is no exception. Not only are condominiums attractive for developers trying to provide multi-family housing in our nation’s densest markets, but they’re also attractive for first-time buyers and those looking to downsize in Portland.

It used to be that getting a mortgage for a condo, especially one under development that hadn’t been financed in the past, was considerably more complicated than getting a loan to buy a new of previously inhabited single-family dwelling. That is no longer necessarily the case. The nation’s biggest mortgage backers are catching on to the necessity of condo mortgages and are making it easier for those who need a mortgage to purchase a condo.

Big Backers Get Serious About Condos

Freddie Mac, Fannie Mae, the FHA, and the VA – nearly all of the mortgages in the United States are backed by financing from one of these four entities. They decide what they will accept and what they won’t in terms of financing and what is to be financed. Historically, these groups made it harder for individuals and families to finance condos with a mortgage.

The reasoning that a condo was not a single investment, but an investment that depended on the overall viability of the building or development, led mortgage backers to require more of borrowers than if they were securing a mortgage for a single-family dwelling built on property also being purchased with the loan.

These days, however, as Fannie Mae and Freddie Mac go, so does the FHA and VA. Additionally, neither the Veteran’s Administration nor the Federal Housing Authority charge borrowers a premium to finance condominiums or a co-op any longer. Now you can mortgage a condo at the same VA or FHA mortgage rate as you can if you are purchasing a single-family home.

Not All Hurdles Have Been Cleared for Condo-Buyers

Despite a general easing of the conditions required to obtain a mortgage on a condo, there are still specific qualifications that a development or building has to meet in order to be cleared for financing by Freddie Mac or Fannie Mae (and by default, the FHA and the VA). These conditions include:

• No single owner can own more than 10% of the units.
• A deposit of 5%, with mortgage insurance, is still required of prospective borrowers (*a first-time home buyer can buy a condo with as little as 3% down for Fannie/Freddie, if they meet other eligibility requirements).
• The building or development must be financially stable.
• Borrowers still need to have a solid credit rating (as determined by the lender) and a steady income that will allow for them to repay the loan.

The Future May Be Condos

As the population continues to increase and becomes more urban and more concerned about the environment, sprawl will continue to be something that can only be avoided through increasing population density. Building and developing vertically rather than horizontally is one solution to sprawl, and condos are a necessary component of that, with new developments going up every week in and around Portland.

Also, given the state of the housing market and the economic challenges faced by many in the Millennial generation, condos will continue to be a prime route to homeownership for many years to come.