Why Condo Financing is Different Than Home Financing

Eighty Seven Park condos are a popular housing investment option, particularly for first-time buyers. One of the key reasons for their popularity is that they cost less than an equivalent single-family home in the same area. Their cost tends to be lower than single-family homes because of some shared facilities like the entire complex being built on a single parcel of land whereas in a single-family home each plot has its own title.

There are other differences between Eighty Seven Park condos and single-family units. Because of the communal nature of the complex, these units are managed by Homeowners Association or HOA that ensures the care and maintenance of communal amenities like gyms, pools, and clubhouses. in lieu of this service, the HOA  charges a monthly fee to cover the costs of upkeep of the common areas.

Most home purchases are carried out through some sort of financing and herein you’ll find another distinction between single-family units and condos.

Why are mortgages on Eighty Seven Park condos slightly higher?

Mortgage lenders shield themselves from risk by charging higher premiums on risky investments. The reason why you might find mortgages on condos to be higher than on single-family units stems from the shared ownership. Unlike the case of a single-family unit where total responsibility lies with the individual owner, in Eighty Seven Park condos there is a shared responsibility amongst all residents and particularly with the HOA itself.

The other inherent risk with condos is that rules are set by an organization rather than the individual owner of the residents which might make it unattractive to potential buyers in case of foreclosure of the unit.

Eighty Seven Park

Finally, the viability of the complex is very dependent on each individual owner so if multiple owners are unable to make payments it can jeopardize the entire investment.

Differences between an Eighty Seven Park mortgage and home financing

The mortgage interest rate will be higher

There’s a high likelihood that an individual purchasing an Eighty Seven Park condo would be subject to higher mortgage rates than if they were purchasing a single-family unit on similar terms, this is as we mentioned before, is to compensate for the higher risk exposure for lending to purchase a condo than a similar single-family unit. The borrower can mitigate this hired by simply putting up a larger down payment and reducing the risk exposure of the lender.

You may require a larger than the standard down payment

Potential Eighty Seven Park condo owners should be aware that if they want to access the best mortgage rates then they would need to put down a down payment of at least 25% of the total purchase price of the house. Failure to put down a large down payment will lead to higher mortgage rates that in turn leads to a more expensive loan for the borrower. Again this is a function of the risk exposure to the lender where they try to mitigate this risk by compelling the borrower to put down a larger down payment.

Homeowners association fees

When computing the viability of a mortgage loan, lenders rely on an accounting function called debt to income ratio. The lower the proportion of the debt is to the income then the more likely the borrower is to finance their monthly mortgage payments. The monthly payments to the HOA constitute part of the debt part of this ratio. For individuals looking to purchase an Eighty Seven Park condos, then the higher the HOA fees, the more adversely it will impact their approval of the mortgage loan.

Prospective condo buyers should also be aware that HOA fees are not static and can undergo dramatic increases leading to severe strain on individual who also has mortgage payments to service.

Qualification of the property

Not all real estate property has access to the many financial loan types available. Some mortgage types like the FHA which is federally funded have certain standards that must be met before the complex is eligible and listed as a property that can be financed by FHA mortgages. Some of the conditions that would have to be met include that at least half of the units in the complex are owner-occupied meaning that they are not available for rental purposes. Another relatively common condition is that no single investor should own more than 10% of the individual condo units in the complex.

The FHA also requires that the property undergoes a financial review that is valid for the last 12 months. These stringent conditions mean that it is harder to finance an Eighty Seven Park condo purchase from federally sourced funds.

The other steps that mortgage lender undertake to reduce the mitigation of financing a Eighty Seven Park condo include

Reviewing the finances of the HOA including its reserves to establish its financial health. They also evaluate the payment history of owners of condo units in that complex because if they’re in default it means the entire property is at risk of foreclosure and this exposes them to a lot of risk.

They evaluate the HOA documents for any red flags that might lead to a depreciation of the asset they have loaned money on. If there is significant risk exposure then they will simply decline to approve mortgages on that property.

The percentage of owner-occupied units also indicates how invested the owners are in the property. The higher this percentage is then the most secure mortgages are that are taken on the property because owners will tend to look after their property more and tend to default less when they live in the units they have purchased.

So that has been our review of the differences between mortgages on a Eighty Seven Park condos and those that you can take on a single family unit or at home.

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