Condo Financing: Why Condos Sometimes Need an Extra Approval Step

Buying a condo isn't the same process as buying a single-family home. Here's why the building itself has to get approved, not just you.

I've had buyers fall in love with a condo, get fully approved themselves, and then find out the building isn't approved for financing. It's one of the more frustrating surprises in this business, mostly because nobody warns people about it ahead of time. So let's fix that.

When you buy a single-family home, the lender is really only underwriting you and the property itself. With a condo, there's a third layer: the building or complex as a whole. That's because when you buy a condo, you're not just buying your unit, you're buying a share of a shared structure, shared finances, and shared risk with every other owner in that building.

Why the building gets underwritten too

If the homeowners association is underfunded, involved in litigation, or has too many units rented out instead of owner-occupied, that affects the value and stability of every unit in the complex, including yours. Lenders know this. So before they'll finance a unit, they often need to confirm the project itself meets certain standards.

This review looks at things like the percentage of units that are owner-occupied versus rented, how much of the budget is set aside in reserves, whether any single owner holds too many units, and whether the HOA is tangled up in a lawsuit. Fannie Mae and FHA each have their own versions of this review, and the specific requirements differ depending on the loan program.

Warrantable vs non-warrantable

You'll hear the term "warrantable" a lot in condo financing. A warrantable condo is one that meets standard agency guidelines, which generally makes it eligible for more loan programs and more competitive terms. A non-warrantable condo is one that doesn't check all those boxes, maybe too many units are rented out, maybe the HOA has a pending legal claim.

Non-warrantable doesn't mean unfinanceable. It usually means the loan has to go through a different program, often with different down payment or documentation requirements. This is actually where working with a broker helps a lot, because we're not stuck with one lender's condo rules. If one lender passes on a building, there's a real chance another one of our 40+ lenders will still work with it.

What this means for your timeline

The condo review can add time to your file, because your loan officer usually has to request HOA documents like the budget, bylaws, and insurance certificate, and sometimes a condo questionnaire filled out by the management company. Some management companies are quick about this. Others take weeks. If you're buying a condo, it's worth asking your Realtor early whether the building has a recent, completed condo approval on file with a lender. That alone can save real time.

If you're shopping for a condo in Virginia, North Carolina, Michigan, Ohio, or West Virginia, talk to us before you're deep into a contract. We can often get a sense of whether a building is likely to be an easy approval or a harder one, and if it's the latter, start lining up a lender who handles non-warrantable condos before it becomes a deadline problem. You can reach our team at (757) 493-1582, or start with the loan program pages at ecomortgage.com/loans to see how different programs handle condo properties.

Written by a real loan officer

Austin Frangoules

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