No matter how strong you may be as a buyer, whether from a credit, asset, or income perspective, deals on Metro DC condos can still fall through if the condo itself or the Homeowners’ Association (HOA) doesn’t pass the test in the eyes of a lender.
As your local real estate experts in Bethesda, Chevy Chase, Washington DC, and the surrounding communities, we’re sharing below 10 things to consider when financing a DC area condo.
No single entity/person can own over 20 percent of the units in the complex. Before 2018, it was 10 percent.
No more than 35 percent of the square footage of the entire complex can be classified as “commercial.” Before 2018, the limit was 25 percent.
Rates are Higher
Condo financing has higher interest rates if the Loan-to-Value ratio (LTV) is over 75 percent.
No more than 15 percent of the units can be more than 60 days delinquent with HOA dues. While this is rarely an issue in today’s market, it does pop up during real estate downturns (for instance, in 2009-2012).
Any litigation involving the HOA is typically a cause for concern for lenders (and likely will kill the deal), but not always if it doesn’t affect the subject unit. Lenders will need to review the actual litigation or complaint and if necessary, can use a non-Fannie or non-QM (Qualified Mortgage) lender but the interest rate and down payment requirement will then be higher.
Entire condo complexes need to be FHA or VA approved before FHA or VA financing can be used to finance the unit.
Owner Occupancy Ratios
Owner Occupancy is not an issue if the buyer intends to occupy the unit, however, it must be over 50 percent if the buyer is an investor.
3 Percent Down
Financing for condos is available with 3 percent down, for condo loan amounts up to $548,250. A great alternative to FHA financing, although keep in mind these guidelines are much more strict. For loan amounts higher than $548,250, the minimum down payment is 5 percent.
These significantly affect qualifications and lenders will need to know exactly what they are each month/year.
Lenders will need to check the zoning on a unit because you oftentimes cannot tell just by looking at it. If the condo unit does not touch the ground, it is likely zoned as a condo. If it does touch the ground, it could be zoned as a PUD/townhome or condo. PUD/townhomes are not subject to condo restrictions.
Do not hesitate to reach out to The Estridge Group with any questions about buying a condo or home in Bethesda, Chevy Chase, Washington DC, or beyond!
We are here to help!