Why Lenders Don't Swoon Over Condos
Getting a mortgage for a condo unit is a little bit difficult compared to other types of properties. Here are some of the reasons for this:
Renters Tend To Be More Careless Than Owners
Many people buy condo units and then rent them out to others either for the long or short term. Unfortunately, renters aren't as careful with their homes as owners, probably because the renters won't suffer the same consequences as owners when the properties get damaged. Mortgage lenders know this, which is one reason they are reluctant to finance condo purchases. In fact, lenders require a certain percentage of condo units to be owner-occupied before issuing a mortgage. This reduces the risk of damages that the development might suffer.
HOA May Lack Maintenance Funds
Another reason lenders aren't too excited with condo mortgages is that the common areas (in condos) are maintained by the relevant homeowners association (HOA). This means a condominium development can suffer a serious damage if the HOA, through one reason or the other (such as misappropriation of funds) fails to discharge its maintenance duties. For this reason, a condo only qualifies for a mortgage if the HOA agrees and deposits a certain percentage of its fees in its account to be used for emergency and planned maintenance issues.
The Value of the Development May Change Over Time
Since condominiums are large developments, it's common for some units to be completed and far ahead of the others. This also means that many units can be occupied before all the infrastructures in the development are completed. Since these infrastructures all affect the value of the property, it means the value of individual condo units may change if the infrastructures aren't completed as specified. A lender might lose their money if that happens and a borrower defaults on their payments because the lender may fail to recoup their entire investment.
A Buyer May Bite Off More Than They Can Chew
Lenders also have a problem with one buyer buying multiple units within the same development. This is dangerous because if the buyer defaults in their HOA fees, the HOA may lack the necessary funds to maintain the property, and its value may fall. Another reason is that the buyer will not be able to live in all the units, meaning they will have to rent it out, leading to the aforementioned risks.
As you can see, you should really be careful when choosing a condominium if you want to buy a unit on a mortgage. A real estate agent can help you make the choice so that you can still qualify for a mortgage, and at reasonable risks, as you look for real estate for sale.