Like single family homes, condominium units tend to be owner-occupied. Financing for these units therefore tends to follow traditional guidelines and requirements centered on owner occupancy. But what happens when a condo unit is held as an income-producing investment? Is financing still available? The short answer is yes but some further explanation of the process may be helpful.
Availability of Financing
Investor units generally fall into two groups: single units and blocks of units. According to Ryan Skaggs, a loan originator with Wintrust Mortgage, a residential lender based in Rosemont, Illinois, individual condo units which are held for investment are financeable at terms similar to owner-occupied units. “Rates for investment properties typically are slightly higher than an owner-occupied purchase.
Most underwriting guidelines require 20% down, but in order to get the best terms for an investment property purchase, lending pros generally recommend 25%. Conversely, if purchasing an owner-occupied unit, a buyer could purchase the property with as little as 3% down taking advantage of conventional financing.”
“FNMA [‘Fannie Mae’] loans are available for investment properties,” says Skaggs, “but in this region they must be below $417,000 and underwritten to specific guidelines. Loans over $417,000 are considered ‘jumbo’ loans and require different criteria.”
Barry Korn, a mortgage banker with The Federal Savings Bank, which has locations in Illinois, concurs. The financing process for these types of investments “is similar to that of an owner-occupied unit,” he says. “Purchases are straightforward in that you have standard criteria relative to loan-to-value (LTV), debt-to- income, and housing expense ratios. With respect to financing an investment condo, there are additional considerations relative to the ability of the borrower in the event of difficulties.”