If you are in the market for a condominium, the home you may want to buy may not qualify for a number of financing options that would normally be available.
There are a number of reasons that lenders scrutinize condominium loans more carefully than those for townhomes and single family homes.
During downturns in the market, condominiums tend to decrease in value more than single-family homes. Additionally, condominiums with certain characteristics have a higher probability of going into foreclosure and can be harder to sell.
Therefore, national lending and insuring entities eliminate some condo communities from financing eligibility. These firms are Fannie Mae and Freddie Mac, which are conduits for conventional financing, and the Federal Housing Administration, Department of Agriculture and Veterans Administration, which insure mortgages.
These loan programs have the lowest interest rates and smallest down-payment requirements for 30-year fixed mortgages. If you buy in a community that does not qualify for government-sponsored or insured mortgages, you will have to secure financing from a local bank, which will require a down payment of 20 percent or more for a fixed-rate mortgage or adjustable mortgage.
During periods when real estate values decrease, condominium values normally drop at a higher rate, so higher percentages go into foreclosure.
Government sponsored or insured mortgage entities analyze the foreclosure and delinquency statistics to determine what type of borrowers or property types pose the greatest risks.
Condominiums, as a category, are considered high risk, and the agencies have determined that condo communities with certain characteristics carry an even higher level of risk.
Most condominium communities in the Durango area have a high percentage of investor owners, which makes them ineligible for the government-backed mortgages, which require that 50 percent to 70 percent of the condominiums in a community be occupied as a primary or second home. There are a few communities in town and a large percentage near the Purgatory ski area that allow vacation rentals.
Steve Setka is an exclusive buyer’s agent with Keller Williams Realty in Durango and a licensed mortgage originator. He can be reached at 903-7782 or steve@durangore.net.
