Condo Financing: How Do Condo Mortgages Work?

Written by Crystal KellyUpdated: 2nd Jan 2022
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Condominium prices are dropping, and for some, now may be a great time to take advantage of lower median asking prices and the convenience of owning a maintained unit, often in great locales.

Read on to learn more about what a Condo Mortgage is, how it works, and whether this is a smart financial decision or not.

What is a Condo?

A condo, short for condominium, is a single unit in a larger complex or building, but unlike apartments, these units are individually owned.

Condos offer many conveniences; on-site, shared facilities such as gyms and common recreation spaces, grounds and maintenance services, security, and are often located in populated, lively locations.

Condos can also be a source of income for those who want to own a unit but take advantage of short-term rental income to help offset ownership costs.

Whether you are looking at a condo as a permanent home or an investment, these individually owned units can be a good option.

How do Condo mortgages work?

Purchasing a condo is the same as purchasing a residential home, but there are added steps and rules to the mortgage process.

Your credit scores, reports, income, tax returns, and debt to income ratios will all be considered, but in addition, the underwritersof your loan will take into account the condominium association as well.

Factors such as the overall health of the association, the ratio of owner-occupied units as opposed to rented units, the financial health of the association (to whom you pay your monthly maintenance dues) will all be taken into consideration.

>> More: See the Best Mortgage Lenders

What Types of Condo Loans Are Available? Condo Financing.

There are several types of loans available for financing a condo. Knowing your financial ability and the guidelines for each of the following options is a good place to start when determining which loan is the best option for you.

Conventional Loans

Conventional loansmeet the guidelines set by underwriting through Fannie Mae or Freddie Mac but are not guaranteed by a government entity.

Both Fannie Mae and Freddie Mac fall under similar guidelines, such as ensuring that no more than 15% of the units in the complex are more than 60 days late on HOA dues (maintenance fees).

Half of the units must be owner-occupied or second homes, and 10% of the Association’s budget must be held back for maintenance. There are also some limitations on the amount of money you can borrow.

FHA Loans

If you are looking for a first-time buyer loan with a low-down-payment option, then FHA Loans might be a good fit.

For qualified buyers, this loan option normally requires only 3.5% down. The underwriting rules for FHA require that half of the units are owner-occupied, and only up to 50% of the units can be FHA insured.

Nonresidential square footage of the complex cannot be more than 35% of the total square footage.

USDA Loans

The USDA loan program helps buyers who qualify and live in rural areas to purchase a condo or home with zero down payment.

The condominium needs to be approved by the USDA, but as a general rule of thumb, if the condo is approved by FHA or VA guidelines, then it will likely be an approved condo under the USDA loan.

The condo complex must also be structurally sound and carry flood insurance if it is located in a rated flood zone.

VA Loans

The VA loan program is designed to assist veterans and families of veterans in purchasing a home or condo with zero money down.

The condo must be approved, of course. VA loans require that at least 35% of the condos are owner-occupied, not more than 10% of the units are more than 60 days late on monthly dues, as well as requiring three years of financial records from the association and 20% of the associations budget must be held back for maintenance.

Moreover, VA Loans also require a VA Home Appraisal and come with a one-time VA Funding Fee. That said, if you qualify, the VA loan is arguably the mortgage on the market. It allows for zero down payment, and touts some of the lowest interest rates. 

Jumbo Loans

A Jumbo loan is designed for a luxury condo or home purchases, as the guidelines exceed the loan limits of a conventional loan.

The underwriting guidelines are the same as a conventional loan. This is an option when purchasing a high-value condo in a higher-than-average real estate market area.

>> More: How to Apply for a Mortgage

Qualifying for a Condo Loan

It comes down to two important qualifications: your financial status and ability and the guidelines of the condo itself.

Loan underwriters will consider both in their approval process. Minimum credit scores and the minimum income needed for each loan option vary.

FHA requires a minimum credit rating of 580. VA, USDA, and Conventional loans typically require a higher credit rating of near 620.

Credit scores affect your interest rate; a higher credit rating will give you a lower interest rate, making your condo purchase more affordable.

Condo loans present a bigger risk to banks, so loan interest rates will sometimes be higher for a condo than a single-family residence. A good credit score can help negate the possible higher condo rates.

The amount of down payment you have for your condo purchase factors in, as well. Private mortgage insurance, or PMI, is sometimes required when you have less than 20% down on your purchase.

This insurance can, and is often, required to help compensate for financial risk on the part of the bank. The premiums vary, but it will increase your monthly mortgage payments.

Calculating Condo Mortgage Payments

Your mortgage payment will vary but will likely need to factor in the following: PMI (private mortgage insurance), property taxes, homeowners’ insurance, HOA dues, and the cost of the principal and interest on your loan.

You can ask your lender to give you an estimated total monthly mortgage cost or use a condo mortgage calculator to arrive at this number. Just be sure you know all the figures you’ll need to get a more accurate estimated cost.

Pros and Cons of Buying a Condo

Homeownership is a large financial responsibility, and choosing the right home can be a daunting task.

If you’re wondering if purchasing a condo is right for you, it’s a good idea to weigh the pros and cons of condo ownership.


  • Amenities: Condos offer shared, recreational spaces that may not be budgeted with a residential single-family home purchase. Pools, parks, tennis courts, gyms, and sometimes cafes are offered in a condo complex. You can enjoy these amenities, but they are shared with your neighbors in the complex.
  • No Maintenance: As a condo owner, you pay a monthly HOA fee that covers the maintenance of the complex, the shared recreational spaces, and the mechanical aspects of your unit, such as A/C units, plumbing, electrical. The cost of monthly HOA dues varies with properties, but you won’t be responsible for cleaning the pool, mowing the lawn, raking leaves, or even repairing your A/C.
  • Ready, Set, go: If you like to travel, spend weeks, or just weekends away, then the managed maintenance aspect of condo ownership may be a good fit. You can pack a bag at a moment’s notice, and there’s no worries about who or how to take care of your property while you are away.
  • Lower Cost Luxury: Condos are often located in desirable areas, sometimes with stunning views, and offer luxury amenities such as well-equipped gyms, pools, and recreation areas. Because the cost of a condo is often less expensive than a single-family home with the same luxuries, you can have the best of both worlds at a fraction of the cost.
  • Price Tag and Lower Insurance: Condos sell, per square foot, often less than residential homes, we’ve determined. In addition to that cost savings, your homeowner’s insurance is often significantly less annually, as well. You only have to insure your unit and your contents, not shared spaces. This also means that you are covering less of the physical property for units with shared walls.
  • Turnkey Ready: Some condos can be purchased fully furnished. Not only will the furnishings likely be appropriate and complementary to the unit, but you can also save on the hassle and cost of furnishing your new home. Not all condos come furnished, but another bonus is they are move-in ready. Condos are maintained, so there’s less of a chance you will need to make repairs or invest additional money into upgrading your home.
  • Built-In Community: Although it is not for everyone, some people like the idea of a close-knit community of neighbors. You will live in close proximity to your fellow condo owners and share recreation spaces. This could be a great option if you are looking for a built-in group of familiar faces and neighbors.


While there are a lot of pros to owning a condo, there are a few notable cons to consider as well.

  • HOA Dues: The managed maintenance of condo ownership is a big plus, but it doesn’t come without a cost. HOA dues must be paid each month, and depending on the condo you are interested in, those fees can range from a hundred per month to even a thousand or more. It’s important to factor these fees into your budget and make sure it fits your life, financially.
  • That HOA Has Rules: Not only do you pay the HOA monthly, but they set rules and determine what you can, and more importantly, cannot do on the property and in your home. The rules vary, and some HOA’s will be more relaxed than others, but keep in mind, those rules are meant to be followed. If you wanted a bright yellow front door, and the HOA says no, then you have to obey.
  • Resell Can Be Harder: This is subjective to the area and the market, but condos often can be harder to resell than single-family residences. It is a good idea to speak to a real estate agent on the market and area and determine if your condo might face difficulty selling quickly, should you decide to move.

How to Get a Condo Loan (Step-by-Step)

#1. Research Available Condos on the Market

Make sure you have a good idea of what is available to you within your desired location.

#2. Research Condo Associations

When you find your shortlist of condo options, make sure to get a good idea of what the HOA requires, rules and costs.

#3. Find a Warrantable Condo

A warrantable condo is one that can be financed with a conventional mortgage under the Freddie Mac and Fannie Mae guidelines.

Non-warrantable condos make look the same as warrantable options, but Fannie Mae and Freddie Mac have determined they are too risky to buy. These are harder to get financed.

#4. Understand Condo Fees

Condo fees are the maintenance fees you will be required to pay to the HOA once you own your condo.

Understand what these fees cover and, more importantly, what they don’t.

#5. Compare Condo Mortgage Lenders

Using the information above, compare your options on the types of mortgages offered for condo purchases and which online mortgage lender is right for you.

#6. Get Pre-Approved

Getting pre-approved for a condo loan can save you time and effort as you visit properties, utilize the services of real estate agents, and embark on finding your dream condo.

#7. Apply for a Condo Loan

After choosing the condo, you intend to purchase, get with your online mortgage lender and apply for the loan.

There will be various steps involved and documents you will need to procure, but this process can move quickly if you are prepared.

#8. Close on the Condo Loan

Once your loan has been approved and all parties (buyer and seller) have provided contracts on the purchase, you can move forward to closing.

Closing can take 30 days, sometimes more depending on the lender, and some lenders can even offer a quicker closing of 15-18 days.

This is all determined by your lender, so make sure to ask how long you’ll need to wait until you have the keys to your new home!

Bottom Line: Condo Financing

Purchasing a new home can be exciting as well as daunting. Preparing yourself financially, understanding your options, researching your home choices as well as lenders, and knowing what to expect can help make the process easier and more enjoyable.

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Cris Kelly
Crystal Kelly

Crystal Kelly is an editor and writer specializing in personal finance. As a renowned journalist, she contributes to multiple leading financial education and real estate publications. She attended the University of Maryland where she majored in English and minored in Art History. Hailing from Shoreacres, TX, Crystal provides content that helps you make simple financial decisions with confidence. Her area of expertise spans mortgages, loans, and credit cards.