How to Buy a Condo with Financing | Step-by-Step Guide
Trying to buy a condo without cash can be an uphill battle. If you’re able to obtain a conventional loan and put at least 25% down it gets a tad easier. However, if you can’t put that much down it can be next to impossible, at least in the wrong building.
The real hurdle usually isn’t only the size of your down payment, it’s whether the condo association and the building itself meet the lender’s requirements too. A buyer with excellent credit, solid income, and a healthy down payment can still run into trouble financing a specific unit if the condominium project doesn’t qualify.
But there is hope for those of you who want to become a homeowner and purchase a condo but don’t have a lot of money to put down. Let’s take a closer look at how to buy a condo with financing in Wellington and the surrounding area.
How to Buy a Condo with Financing
1. Understand That You and the Condo Project Both Have to Qualify
Getting pre-approved for a mortgage tells you what you can borrow. It does not tell you whether every condo on the market will actually finance. Lenders evaluate two separate things: the borrower, meaning your credit, income, debts, and down payment, and the condominium project itself, meaning the association’s finances, insurance, and physical condition. A condo can be perfectly livable and still be difficult to finance if the project side of that equation has problems.
You’ll also want to ask questions(opens in new tab) and find out early whether the specific community has any of its own credit or down payment restrictions, and whether it’s approved for FHA financing. Since you or your agent will most likely be dealing with a property management company or a board volunteer for this information, it can take some time, and it’s worth getting documentation rather than taking someone’s word for it if they “think” there are no restrictions.
2. Understand the Reserve and Review Requirements
Conventional condo financing includes requirements related to how an association funds its reserves, and those specific requirements can change over time as underwriting guidelines are updated. The amount an association budgets toward reserves is one of the things a lender looks at when determining whether a project meets current lending guidelines, so it’s worth asking your lender directly what the current threshold is for your loan program rather than relying on older figures.
Lenders also use different project-review processes depending on the property and loan type. Some reviews are lighter, others involve a closer look at the association’s finances, insurance, physical condition, and other project characteristics. Which review applies, and how thorough it is, can change over time, so confirm the current process with your lender rather than assuming it works the same way it did on a past purchase.
If the community is FHA-approved, that program can be a strong option, with down payments as low as 3.5% for eligible borrowers. If it isn’t on FHA’s approved list, that doesn’t automatically rule FHA out. FHA’s Single-Unit Approval program allows certain individual units in otherwise unapproved projects to be financed if the unit and project meet the applicable requirements, so it’s worth asking a lender experienced in condo financing whether that’s an option before assuming FHA is off the table.
3. Know the Difference Between a Warrantable and Non-Warrantable Condo
You’ll sometimes hear a condo described as warrantable or non-warrantable. A warrantable condo generally meets the standards conventional lenders require for reserves, insurance, owner-occupancy, and similar project characteristics. A non-warrantable condo falls short of one or more of those standards, which can involve issues with reserves, insurance, litigation, the physical condition of the project, ownership or occupancy characteristics, or other project requirements.
Non-warrantable does not mean unbuyable, it means your financing options narrow. You may need a portfolio loan, a larger down payment, or a lender who specifically works with non-warrantable condos, so it’s worth knowing which category a building falls into before you get attached to a specific unit. Understanding a building’s reserve funding and financial health up front, covered in more detail in my guide to condo reserve funds, is one of the best ways to spot this early.
4. Make Sure the Seller Will Accept Your Financing
Just because a community qualifies for a low down payment loan doesn’t mean the seller will accept one. Sellers sometimes prefer cash or a large down payment because it means fewer financing contingencies, less risk of the deal falling apart if the condo project fails underwriting, and a faster path to closing. Some sellers have also been through a financed condo deal that collapsed late, which understandably makes them cautious the next time around.
If you or your agent can show the seller you’ve done your homework, that the condo qualifies for the financing you’re using, and that you’re a well-qualified buyer, that’s often enough to change their mind even when they initially said they wanted cash.
Frequently Asked Questions
How much do I need to put down to buy a condo with financing?
It depends on the loan program, your qualifications, the property, and whether the condominium project meets the lender’s requirements. FHA financing can require as little as 3.5% down for eligible borrowers. Some conventional loans can also allow a relatively small down payment. If the project doesn’t meet the requirements for a particular loan program, you may need a different loan, a larger down payment, or a different property.
Can I buy a condo with 5% down or less?
It’s possible, but it depends heavily on the loan program, whether you’ll occupy the unit, your qualifications, and whether the condo project itself meets the lender’s requirements. There’s no single answer that applies to every building, which is why getting the project reviewed early matters as much as getting yourself pre-approved.
What is a non-warrantable condo?
A non-warrantable condo is one that doesn’t meet conventional lending standards, often due to issues with reserves, insurance, litigation, the physical condition of the project, or ownership and occupancy characteristics. It doesn’t mean the condo can’t be purchased, only that financing it may require a portfolio loan, a larger down payment, or a lender who works with non-warrantable properties.
How do I know if a condo qualifies for a low down payment loan?
Request a copy of the association’s current budget and have your lender review the reserve funding against current guidelines. This isn’t something you can determine with certainty on your own, since it depends on lender-specific underwriting and current Fannie Mae or Freddie Mac requirements.
Can a condo seller refuse a financed offer?
Yes. Sellers aren’t obligated to accept financing, and many prefer cash or a large down payment, especially if they’ve had past issues with condo financing falling through. A well-documented, qualified offer can sometimes change a seller’s mind even if they initially wanted cash.
Is it harder to get a mortgage on a condo than a house?
It can be. A lender evaluates the building’s finances and reserve funding, not just the buyer, so the same buyer can be approved in one building and denied in another. That project-level review has also become more thorough in recent years.
Final Thoughts
Buying a condo with financing isn’t always easy, especially if you don’t have a lot of money to put down. This step-by-step guide shows it is possible, though it may take countless phone calls and some real patience to buy a condo with little to no money down.
Condos are a great option for a lot of first-time homebuyers who want to leave an apartment complex but aren’t ready for the upkeep of a home. There’s a cost for a maintenance-free lifestyle, so buyers need to make sure they can afford the monthly dues in addition to their mortgage and utilities.
If you don’t have a large down payment, don’t automatically assume you can’t buy a condo. The down payment you need depends on your loan program, your qualifications, and whether the condominium project meets the lender’s requirements. Speak with a top Realtor and a lender experienced in condo financing to discuss your options.
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About the Author
Top Wellington Realtor, Michelle Gibson, wrote: “How to Buy a Condo with Financing | Step by Step Guide.”
Michelle has been specializing in residential real estate since 2001 throughout Wellington Florida and the surrounding area. Whether you’re looking to buy, sell or rent she will guide you through the entire real estate transaction. If you’re ready to put Michelle’s knowledge and expertise to work for you call or e-mail her today.
Areas of service include Wellington, Lake Worth, Royal Palm Beach, Boynton Beach, West Palm Beach, Loxahatchee, Greenacres, and more.
