What is UNIQUE about financing the purchase of a condo?
If you have ever purchased or thought about purchasing property, the first question that usually comes to mind is how are you going to pay for the property?
You have a few different options:
1. Pay for the entire purchase with your own cash.
2. Have the current owner finance the purchase of the property with the new buyer.
3. Get a mortgage loan from a financial institution.
The most popular option is to get mortgage loan from a financial institution. If you chose to use a mortgage loan, the property seller will usually want to see a pre approval letter from your lender before you go under contract. The letter may also contain the proposed loan terms.
When choosing to get a loan, a borrower will want to know the value of these three loan term variables:
– Interest rate
– Percentage of purchase price needed as a down payment
– Length of the loan term (in months)
Condo loans in particular
When getting a loan for a condo the lender will want to know if the condo complex is warrantable or non warrantable? This is not a question that you will generally have to deal with if you are purchasing a single family home.
There are several factors lenders will look at when determining if a condo complex is warrantable. Your lender can discuss these factors in greater detail.
The main factor that will make a condo non warrantable in the UT campus area is the number of investor owners versus the number of owner occupants at a particular condo complex. If 51% or more of the units at a complex are investor owned, the complex is non warrantable.
For potential buyers that are relying on a big national bank to get their loan, they may get discouraged and decide that they can not buy a condo near campus. In general these national banks will not do a loan for a non warrantable property. In addition, if these banks are not told up front, they generally do not realize that the condo is non warrantable until you are more than halfway toward your closing date…now what!
Non Warrantable…no problem!
The reality is that hundreds of condos change hands near campus every year. Many of these transactions are financed even though almost all condos near the UT Campus are non warrantable.
Thanks to smaller local banks and credit unions that offer portfolio loans, a non warrantable condo is NOT a show stopper when searching for a mortgage loan.
Check with your lender about the difference in terms for a warrantable loan and a non warrantable condo loan. According to experienced condo lender Travis Taylor at Colonial lending, the main difference between the warrantable and non warrantable condo loan is the down payment amount needed.
Down payments for non warrantable loans start at 20% down whereas warrantable condo loan down payments are starting at 5% down.
Other than the down payment amount, the interest rates and term length of these two types of loans are pretty much the same either way.
When deciding to make a move on a campus area condo make sure your lending institution can make a loan on a non warrantable condo. It’s better to know who can get the deal done before you are under contract!