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The Condo Mania Team

News > Financing your Tempe Condo? Read Here First

Condos are popular real estate investments and are especially attractive to first-time home buyers. They can be less expensive than single-family homes, they require less upkeep, and they often offer a variety of perks such as pools and gyms.

Most buyers, however, are unaware that financing a loan for a condo can be tricky – more so than financing a single-family home.  When a bank underwrites your loan, they carefully assess the property that you’re buying. If it’s a single-family home, the underwriting process is straightforward. For condos, the process is more complex and requires special consideration. After all, condo owners not only own their condo units (which they can sell or lease), but they also own a stake in the common area of the condo complex.

To top it all off, Fannie Mae, one of the leading home mortgage buyers in the world, added new condo loan requirements following the housing crash in 2008.

If you’re trying to obtain financing for your condo, it’s helpful to know what factors your lending institution is looking at when deciding whether or not to finance your loan. Here are a few:

New Construction:  In a new condo development, Fannie Mae requires that 70% of all units be sold before it offers loans for condos in that development. Fortunately, we've found that many of the new condo developments have arrangements with other lenders willing to offer financing until most of the units have sold.

Investor Rentals:  Fannie Mae considers too many investors buying into condo communities a liability. In fact, they require that 51 percent of condo units in the development be used as a primary or secondary home. Unfortunately, homeowner’s associations sometimes don’t keep track of these statistics well and second home buyers can be lumped in with investors, pushing this statistic over the edge.

When shopping for your condo, check if the development has its own leasing office. If it does, there is  probably a higher percentage of investor-owned units – which may not be good news for you if you’re trying to obtain a loan.

Ten Percent Rule:When the prices of condos fell dramatically between 2006-2010, investors jumped into the market with both feet and bought up multiple units in smaller developments -  for cheap.

Unfortunately, overbuying by an individual investor could cause the whole development to become un-financeable. . Conventional mortgage lenders frown upon condo developments with owners that own more than ten percent of the units.  

Financial Woes: Condo developments charge homeowners association fees or condo fees to pay for the maintenance of the common areas, amongst other things. When the housing market crashed, many of the owners stopped paying their fees entirely. As a result, higher association fees were assessed to make up for the shortage of community reserves used to pay for roof repair, painting, etc.

However, not all condo developments have restored their community reserves. And some just didn't fund them in the first place. This could spell trouble for you when trying to obtain that loan.

FHA lenders require that at least ten percent of the condo development budget be allocated to the community reserves.  In addition, Fannie Mae states that only 15 percent of all condo owners in a development can be delinquent in their association fees.

Pending Litigation:  Fannie Mae will not approve a loan for any condo within a condo development that is involved in substantial litigation. If the homeowner’s association sues a pool company for suspect workmanship while resurfacing the pool, all conventional lending within that development may stop. Fortunately, their rules also stipulate that lawsuits involved in minor matters may be overlooked.

Obtaining financing for a condo is definitely more challenging in today’s market with the new regulations, but it’s still possible. The single most important thing you can do to ensure your success is to work with a knowledgeable real estate agent with considerable experience in buying and selling condos.

We stay on top of lending regulations. We also know our market. We work hard to keep track of which condo developments are involved in litigation, have troubled homeowner associations, and which ones are investment heavy. 

Contact us today. Tell us what you’re looking for. We want to make your dream of owning that perfect condo a reality.


Though not guaranteed, information and statistics in this article have been acquired from sources believed to be reliable.

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Information Deemed Reliable But Not Guaranteed. The information being provided is for consumer's personal, non-commercial use and may not be used for any purpose other than to identify prospective properties consumers may be interested in purchasing. This information, including square footage, while not guaranteed, has been acquired from sources believed to be reliable.

Last Updated: 2024-02-21 04:35:47