If you’re ready to be a homeowner and prefer an easy maintenance lifestyle, you’re probably thinking of how you can get a loan for a high rise. High rises are popular among first-time buyers because of its low maintenance lifestyle and many amenities, but the process of buying a high rise is not easy. Read on to find some of the common questions we get about getting a loan for a high rise.
Can You Get a Loan for a High Rise?
When you’re ready to take a few steps into adulting and you feel you’re now capable of standing on your own, you’re already probably thinking about owning a property that will fit your needs, like a high rise.
There are two ways of owning a high rise.
One, you can buy it on a cash basis.
Or two, you can finance the purchase through a mortgage, as many homeowners do.
When it comes to mortgage, you also have two choices. You can get a mortgage through a conventional loan, or through an FHA loan.
A conventional loan is a mortgage that’s not insured by any office of the government. That’s why they are sometimes called non-government sponsored entity or non-GSE loan.
On the other hand, an FHA loan is a mortgage that’s guaranteed by a government agency. FHA stands for Federal Housing Administration and it is under the Housing and Urban Development’s Office, the federal agency responsible for improving America’s housing and community needs.
Is It Difficult to Get a Loan?
If you think qualifying for a single-home mortgage loan is difficult, try applying for a mortgage to buy a high rise.
In a single-family home mortgage, you have to prove to the lender that you have control over your finances and can pay the monthly mortgage.
In a condo mortgage, you also have to prove to the lender that your finances are in good shape and you can pay the monthly mortgage. You also have to prove to the lender that the homeowner’s association is financially healthy, properly insured, and has the budget needed to cover any unexpected damages.
Getting a mortgage for a high rise condo is made more difficult by the fact that although you have control over your finances, you have no control over the homeowner’s association finances.
In fact, lenders will qualify for the property first before even looking at your qualifications. Even if you have an excellent credit score but the condo you want to buy did not pass the stringent standard set by the lender, you can’t get a loan for that high rise condo.
Can First Time Buyers Get A Loan?
High rise condos are hot on the market and it’s not just because of the amenities they offer. They are also great as an investment option.
Can you avail of a high rise condo loan as a first-time buyer? Yes, you can, depending on your finances.
If you are financially capable, and the lender has evaluated your condo and approved it, you can get a loan.
How Much for a High Rise Deposit?
One of the common concerns we get about getting a high rise mortgage is about down payment. The answer would depend on what kind of financing you’re using.
If you’re getting an FHA mortgage, the minimum down payment is 3.5%.
If you’re using conventional financing, the down payment could be anywhere from 3% – 20%. It will depend on your credit and financial situation.
How to Finance a High Rise Through a Conventional Loan
if you’re applying for a mortgage for a high rise, you need to prepare two sets of qualifications — yours and and the high rise. Lenders check the qualifications of the high rise property first before the buyer.
Your condo must satisfy the basic requirement of the lender.
Here are some of the qualifications in a conventional loan:
- If the condo has more than 21 units, no more than 10% can be owned by one person or company. If you are to consider the total sum of the condo building, only ten percent of that sum should belong to one person.
- There should be a higher percentage of owners than renters in a condo building. Or at least 50% owner-occupied. Lenders believe homeowners take more seriously the responsibility of caring for and maintaining the building, so they prefer condos with a higher rate of home ownership.
- No more than 15% of owners can be behind on monthly fees. The lender wants to make sure that all owners are paying their fees so the HOA will have sufficient money to pay for any emergencies.
- The condo should be free from any pending litigation. Many condos are in litigation. To ensure that your condo is free from any litigation, the lender will conduct their investigation.
- The condo must have sufficient budget reserves. The lender will evaluate the homeowner’s association of the condo to make sure that the condo is a good financial investment.
If your condo does not meet these requirements, it will be hard for you to get a condo loan.
How to Finance Through an FHA Loan
Many buyers prefer FHA financing when availing for a condo loan because it is less stringent than a conventional loan. However, FHA rules are more strict when it comes to the condo qualification itself.
Take all of the conventional loan requirements and add a few more — that’s how strict FHA requirements are. Here are a few qualifications FHA looks at.
- The condo must be on the FHA approved list.
- The condo must have been completed for at least one year.
- The condo must be primarily for residential use. Commercial usage should be no more than 25% of the building’s floor space.
- Condotels are not approved. You can’t apply for a government insured loan if you want to buy a condotel.
- The condo must be in a good location that’s a good distance from a busy road, the airport, a military airfield, or an active railroad. It must be also be constructed on a site that is located a reasonable distance away from a well-traveled road, an active railroad, an airport, or a military airfield.
Steps to Getting a High Rise Loan
Now that you know more about how to get a loan for a high rise, here are the steps you need to take:
Step 1. Hire the right real estate agent. Find the real estate agent who has the skills, experience, and familiarity in the area. The agent should be well-experienced in the high rise buying process particularly when it comes to loan requirements.
Step 2. Secure a pre-approval. Before you start looking at high rises, look at your budget first. See how much you can spend on mortgage and expenses. Then go to the bank and seek for a pre-approval. Lenders will check your credit score, if you have a steady source of income, and if you can pay a 20% down payment.
Step 3. Look for a high rise that is Fannie Mae or FHA approved. You want to get a mortgage with the lowest rate possible, and you can do if you can find a condo that is Fannie Mae approved. Once the condo is approved, the process gets easier.
Step 4. Make an offer, inspect the property then close the deal. When you found the unit you like, make an offer with your real estate agent’s help. After both parties are satisfied with the terms, you can then move on to home inspection, and then closing.
Sometimes, things don’t work out the way you want to. If you can’t find a high rise that qualifies for a conventional or FHA loan, be prepared to buy the property in cash.
Buying a condo can be an exciting process if you know what to do, and you have the right real estate agent to help and guide you along the buying process.