Buying a condo is different from buying a house — and so is getting a mortgage for one. Lenders don't just evaluate you as a borrower; they evaluate the entire condo building and its homeowners association. Understanding these requirements upfront can save you from surprises during the mortgage process.
Why Condo Mortgages Are Different
When you buy a condo, you own your individual unit but share common areas and building systems with other owners. This shared ownership structure creates risks that don't exist with single-family homes:
- The HOA's financial health affects your property value
- A poorly managed building can lead to special assessments
- High investor ownership can signal instability
- Pending litigation against the HOA creates uncertainty
Lenders need to assess these building-level risks before approving your loan.
Warrantable vs. Non-Warrantable Condos
This is the most important concept in condo financing. A "warrantable" condo meets the guidelines set by Fannie Mae and Freddie Mac — the government-sponsored enterprises that buy most conventional mortgages.
Warrantable Condo Requirements
A condo is generally warrantable if:
- Owner-occupancy rate: At least 50% of units are owner-occupied (not rented out)
- Single-entity ownership: No single entity owns more than 20% of the units (10% for buildings with 20+ units)
- Commercial space: No more than 35% of the building's total floor area is commercial
- HOA budget: At least 10% of the annual budget goes to reserves
- Insurance: The HOA carries adequate hazard, liability, and flood insurance
- No litigation: No active or pending litigation against the HOA (with limited exceptions)
- Delinquencies: No more than 15% of units are 60+ days delinquent on HOA dues
- Project completion: The project is complete — not still under construction
What Happens If Your Building Isn't Warrantable?
Non-warrantable condos are harder to finance but not impossible:
- Portfolio lenders may offer loans they keep on their books rather than selling to Fannie/Freddie
- Higher rates: Expect 0.25–0.75% higher than warrantable condo rates
- Larger down payment: Often 20–25% minimum
- Fewer lender options: Not all lenders work with non-warrantable properties
What the Lender Reviews
When you apply for a condo mortgage, the lender conducts a "project review" of the building. Here's what they examine:
HOA Financials
- Annual budget and reserve fund balance
- History of special assessments
- Percentage of owners current on dues
- Insurance coverage adequacy
Building Characteristics
- Owner-occupancy vs. rental ratio
- Concentration of ownership
- Commercial space percentage
- Age and condition of major systems
Legal Status
- Active or pending litigation
- Any regulatory violations
- CC&Rs (covenants, conditions, and restrictions)
- Right of first refusal clauses
How This Affects Your Loan Options
Conventional Loans
Most conventional lenders require a full or limited project review. Full reviews are more thorough and apply to larger projects. Limited reviews are available for established projects with strong characteristics.
FHA Loans
FHA has its own condo approval process. The entire building must be on the FHA-approved condo list, or qualify for single-unit approval. FHA requirements include:
- Owner-occupancy above 50%
- No more than 50% FHA-insured units in the project
- HOA must be adequately funded
- No active litigation
You can check FHA-approved condos at HUD's official condo lookup tool.
VA Loans
VA also maintains its own approved condo list. Buildings must be approved before a VA loan can be used to purchase a unit. The approval process evaluates similar factors to FHA but with VA-specific criteria.
Tips for Condo Buyers
- Check approval status early: Before making an offer, verify whether the building is on FHA and VA approved lists and whether it meets warrantability guidelines
- Request the HOA resale package: This contains the financials, budget, CC&Rs, and other documents your lender will need
- Ask about pending special assessments: A large upcoming assessment can complicate financing and affect your budget
- Review the rental cap: Some buildings limit the percentage of rentable units — this affects warrantability and your future flexibility
- Factor in HOA dues: Your lender includes monthly HOA dues in your debt-to-income calculation, reducing your purchasing power compared to a house
The Bottom Line
Condo financing requires an extra layer of due diligence. The building you choose matters as much as the unit itself when it comes to your mortgage options, rate, and costs. Start the approval research early, and you'll avoid the most common pitfall: falling in love with a unit in a building that creates financing headaches.
