Condo & Condotel Loans

  🏢 Condominium Loans: A Comprehensive Guide

Buying a condominium is different from purchasing a single-family home, as lenders assess the entire building’s financial health and eligibility. Condominium loans are structured differently based on whether the property is considered warrantable or non-warrantable by Fannie Mae and Freddie Mac. Additionally, the type of property—condominium vs. condotel—affects loan availability and terms.

🔹 Understanding Condominium Loans

What is a Condominium Loan?

A condominium loan is a mortgage used to finance the purchase of a condo unit. Unlike traditional home loans, condo loans must meet specific eligibility criteria set by lenders and government agencies.

🔹 Factors Affecting Condo Loan Approval

✅ The financial stability of the condo association

✅ The owner-occupancy rate (percentage of units owned and lived in by residents rather than investors)

✅ The delinquency rate (percentage of owners who are behind on HOA fees)

✅ The building’s insurance coverage

✅ Whether the condo is classified as warrantable or non-warrantable

Warrantable vs. Non-Warrantable Condominiums

Lenders classify condos as either warrantable or non-warrantable, which determines the mortgage options available to buyers.

🔹 Warrantable Condominiums

A warrantable condo meets the standards set by Fannie Mae and Freddie Mac. These loans are eligible for conventional financing with lower interest rates and down payments.

➡️ Key Criteria for a Warrantable Condo:

✅ Over 50% of units must be owner-occupied or second homes (not investment properties).

✅ No more than 15% of unit owners can be delinquent on their HOA dues.

✅ The condo project must have adequate financial reserves for repairs and maintenance.

✅ No single entity can own more than 20% of the units.

✅ The condo must have sufficient insurance coverage (hazard, liability, and fidelity coverage for the HOA).

➡️ Loan Options for Warrantable Condos:

✅ Conventional Loans (Fannie Mae & Freddie Mac): Low interest rates and down payments as low as 3-5%.

✅ FHA Loans: Require a minimum 3.5% down payment but only available for FHA-approved condos.

✅ VA Loans: 100% financing for veterans and active military if the condo is VA-approved.

✅Jumbo Loans: Available for higher-priced condos exceeding conforming loan limits.

🔹 Non-Warrantable Condominiums

A non-warrantable condo does not meet Fannie Mae and Freddie Mac guidelines, making it harder to obtain traditional financing. These properties often require specialized loans with higher interest rates and larger down payments.

➡️ Common Reasons a Condo is Non-Warrantable:

✅ The condo project has high investor concentration (more than 50% of units are investor-owned).

✅ The development is new construction or still under developer control.

✅ More than 15% of unit owners are behind on HOA dues.

✅ There are pending litigation issues involving the condo association.

✅ The HOA relies too much on short-term rental income.

➡️ Loan Options for Non-Warrantable Condos:

✅ Portfolio Loans: Issued by private lenders and kept on their books rather than sold to Fannie Mae or Freddie Mac.

✅ Bank Statement Loans: Ideal for self-employed buyers, requiring proof of income through bank statements instead of tax returns.

✅ Jumbo Loans: Required for high-priced non-warrantable condos.

✅ Alternative Financing: Hard money loans or adjustable-rate mortgages (ARMs) may be available but have higher costs.

🔹 Difference Between a Condominium and a Condotel

What is a Condotel?

A condotel (condo-hotel) is a condominium unit that operates like a hotel, allowing short-term rentals through platforms like Airbnb or as part of a hotel rental program. Unlike traditional condos, condotels often have hotel-like amenities such as front desk services, housekeeping, and resort-style features.

➡️ Challenges of Financing a Condotel

✅ Higher Down Payments: Lenders require 20-30% down due to the higher risk.

✅ Higher Interest Rates: Since condotels are seen as commercial-like investments, interest rates are higher.

✅ Stricter Lender Requirements: Lenders may require significant cash reserves and higher credit scores.

✅ Limited Loan Options: Many lenders avoid condotel financing, making options limited to portfolio loans, commercial loans, and hard money loans.

➡️️Loan Options for Condotels:

✅ Portfolio Loans: Custom loans offered by banks that keep the loans in-house.

✅ Bank Statement Loans: Used for self-employed buyers who don’t meet traditional income verification.

✅ Jumbo Loans: Used for expensive condotel units requiring high down payments.

✅ Asset-Based Loans: Approved based on liquid assets rather than income verification.

🔹 Conclusion

Financing a condominium depends on whether it is classified as warrantable or non-warrantable, while purchasing a condotel adds additional financing challenges.

✅ If buying a warrantable condo, you have access to conventional, FHA, VA, and jumbo loans.

✅ If buying a non-warrantable condo, you may need portfolio, bank statement, or jumbo loans.

✅ If purchasing a condotel, expect higher down payments and limited financing options such as portfolio loans, asset-based loans, or hard money loans.

Before purchasing a condo or condotel, consult with a mortgage professional to explore your best financing options based on the property type and loan eligibility.