How to Buy a Condo or Townhouse
People who buy condos and townhouses often have to overcome difficulties that are not faced by people buying other types of homes. Many banks are reluctant to lend against condos and townhouses because of falling home prices in many parts of the U.S. Additionally, government-backed Freddie Mac and Fannie Mae only buy mortgages tied to condos and townhouses that meet strict underwriting guidelines. Due to the difficulties that many people encounter when attempting to find financing for these homes, cash buyers are often able to buy the properties for below market prices.
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Instructions
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Review your bank account and investment accounts to determine how much money you can commit to a home purchase. If you are a first-time homebuyer, the Internal Revenue Service allows you to withdraw up to $10,000 from an Individual Retirement Account for the purposes of buying a home. Determine whether you have sufficient funds to buy a home outright between your IRA and other accounts. If you do not have enough to buy a home outright, decide how much you can afford to commit to a down payment and closing costs.
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Call local lenders and find out what condo and townhouse loans are available to you. Some banks do not lend on nonwarrantable condos, which are condos that do not meet Freddie Mac and Fannie Mae guidelines. Banks that do lend on these properties require down payments of between 20 and 50 percent. Arrange a meeting with the lender that offers the most flexible terms for condos.
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Give the loan officer your last two months of bank statements, last month's pay slips, your ID, Social Security number and explain how much you can afford to commit to closing costs and a down payment. Ask the lender to give you a preapproval letter.
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Contact a local real estate agent and begin looking at condos and townhouses. Find out how much the homeowners association fees are, because you must pay these fees in addition to your mortgage. Request a copy of the homeowners association handbook to make sure you can comply with association rules. Choose a condo or townhouse and agree to a purchase price with the assistance of your real estate agent.
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Give the purchase contract to your lender along with the homeowners association insurance policy. If your lender only lends against warrantable condos, provide the lender with a completed condo questionnaire signed by the seller that proves the condo's eligibility for conventional financing. Arrange a loan closing to complete the purchase.
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Tips & Warnings
Nonwarrantable condos are generally condos that have owner occupancy rates of less than 70 percent or are in buildings that exceed four stories. Condo and townhouse lending requirements vary from state to state and even within states in different metropolitan areas.
Normally, condo and townhouse association fees include homeowners insurance policies that cover all of the units. These master insurance policies only cover the structure of the home. You must buy separate contents insurance to cover your belongings from loss, theft and damage.
