Everything Buyers & Realtors Need to Know About Townhouses, Condominiums & Condo Financing

Buying a townhouse or condominium can be a great way to become a homeowner, enjoy low-maintenance living, or purchase in locations where single-family homes may be less affordable. However, financing a condominium can be very different than financing a townhouse or traditional single-family home.

Below are the most common questions we receive from buyers, sellers, and Realtors.

Understanding the Difference

1. What is the difference between a townhouse and a condominium?

Although they often look similar from the outside, the legal ownership is very different.

With a townhouse, you generally own the home and the land beneath it. Depending on the community, you may also own the exterior structure while the HOA maintains certain exterior items.

With a condominium, you typically own only the interior of your unit. The condominium association generally owns the land, roof, exterior walls, hallways, amenities, and common areas.

That ownership structure is one of the primary reasons condo financing differs from townhouse financing.

2. Why are townhouses usually easier to finance?

Most townhouses are financed similarly to single-family homes.

The lender primarily evaluates:

1. Your income
2. Your credit
3. Your assets
4. Your employment
5. The property's value

A separate review of the entire community is generally not required, the way it often is for condominiums.

3. Why are condos more complicated?

When purchasing a condo, the lender may need to evaluate both:

You (the borrower)

and

The condominium project itself.

The lender may review HOA finances, insurance, reserve funding, owner occupancy, litigation, commercial space, and other project characteristics before approving financing.

Financing Questions

4. Can I buy a condo with only 3% down?

Sometimes.

Many conventional loan programs allow qualified buyers to purchase warrantable condominiums with as little as 3% down, depending on the loan program, occupancy, credit profile, and the condominium project.

If the project is non-warrantable, larger down payments or alternative financing may be required.

5. Can I use FHA financing to buy a condo?

Yes.

However, the condominium project generally must meet FHA condominium approval requirements or otherwise qualify under current FHA rules.

Not every condominium community qualifies.

6. Can I use a VA loan to buy a condo?

Yes.

Eligible veterans may use VA financing on approved condominium projects that meet VA requirements.

If the project is not approved, other financing options may still be available depending on the property and your financial situation.

7. Can I buy a non-warrantable condo?

Often, yes.

Although many conventional lenders cannot finance certain non-warrantable condominium projects, portfolio loan programs and other financing options may still be available.

The available options depend on both the property and your financial profile.

Warrantable vs. Non-Warrantable

8. What makes a condo warrantable?

Generally, a warrantable condominium project meets the lending guidelines established by Fannie Mae and Freddie Mac.

Typical characteristics include:

1. Healthy reserve funding
2. Adequate insurance
3. Limited litigation
4. Balanced owner occupancy
5. Limited investor concentration
6. Well-managed HOA

9. What makes a condo non-warrantable?

A condominium project may be considered non-warrantable for many reasons.

Common examples include:

1. High investor ownership
2. Active litigation
3. Inadequate reserves
4. Delinquent HOA dues
5. Excessive commercial space
6. Developer control
7. Other project-specific concerns

Being non-warrantable does not necessarily mean the property is a poor investment—it simply means financing options may differ.

Condo Review Process

10. What is a condo review?

A condo review is the lender's evaluation of the condominium project to determine whether it meets applicable lending guidelines.

The lender may request documents including:

1. HOA budget
2. Insurance certificates
3. Financial statements
4. Reserve information
5. Litigation disclosures
6. Questionnaires
7. Governing documents

11. How long does a condo review take?

It depends.

If documents are readily available, the review may be completed within a few business days.

If documentation is incomplete or the HOA is slow to respond, the process may take longer.

12. Who pays for the condo questionnaire?

This varies by association and local practice.

Many condominium associations charge a fee to complete lender questionnaires or provide required documentation.

Responsibility for the fee is often negotiated between the buyer and seller.

13. Can a condo review delay closing?

Yes.

Common reasons include:

1. Missing documents
2. Insurance questions
3. HOA response delays
4. Financial concerns
5. Additional lender questions

Starting the review process early can help reduce delays.

Buying Advice

14. Should I avoid buying a condo?

Not at all.

Many condominium purchases close smoothly every year.

The key is understanding the financing requirements before making an offer and working with a lender experienced in condominium financing.

15. What should I ask before making an offer on a condo?

Ask:

1. Is this legally a condo or townhouse?
2. Is the project warrantable?
3. Will a condo review be required?
4. What financing options are available?
5. Are there any known financing restrictions?
6. How long have homes in the community taken to close?

Getting these answers early can help prevent surprises later.

16. Can two homes that look identical have completely different financing requirements?

Absolutely.

Two homes may appear nearly identical, yet one may be legally classified as a townhouse and the other as a condominium.

That difference alone can affect:

1. Down payment options
2. Loan programs
3. Documentation requirements
4. Project review requirements
5. Closing timeline

Understanding the ownership type before making an offer can save significant time and frustration.

17. Are HOA fees included in my mortgage payment?

Usually not.

HOA dues are a separate expense from your principal, interest, taxes, and homeowners' insurance, although lenders generally include HOA dues when calculating your debt-to-income ratio to determine loan eligibility.

18. Does a higher HOA fee make it harder to qualify?

It can.

Higher HOA dues increase your total monthly housing expense, which may affect how much you qualify to borrow.

That doesn't necessarily mean you can't purchase the property; it simply means the monthly payment calculation changes.

19. Can I refinance my condo later?

In many cases, yes.

Your refinance options will depend on current lending guidelines, your financial profile, available equity, and whether the condominium project meets applicable requirements at the time of refinancing.

20. What's the smartest thing I can do before buying a condo?

Talk with an experienced mortgage professional before making an offer.

A quick review of the property can often identify potential financing issues early, giving you more time to evaluate your options and helping you avoid unnecessary delays.

Still Have Questions?

Every condominium community is different, and lending guidelines continue to evolve.

If you're considering a townhouse, warrantable condo, or non-warrantable condominium, we're happy to review the property with you before you make an offer.

We can help you understand:

1. The property's ownership structure
2. Available financing options
3. Estimated down payment requirements
4. Whether a condo review is likely
5. Potential financing challenges
6. The best loan strategy for your situation

Sometimes, a 10-minute conversation before you write an offer can save weeks of frustration later.

➡️ Schedule Your Home Buying Strategy Session

➡️ Have a Property in Mind? Let's Review It Before You Make an Offer

No pressure. No obligation. Just personalized guidance designed around your goals.

Best regards,

Michael Thayer, CMPS, CMA

NMLS #173264

Planet Home Lending, NMLS #17022

Important Information

The information provided on this page is intended for general educational purposes only. Mortgage lending guidelines, condominium project requirements, loan programs, underwriting standards, and investor requirements change periodically and may vary by property, occupancy type, loan program, and individual borrower qualifications.

Nothing contained on this page should be interpreted as a commitment to lend, a guarantee of loan approval, or legal or financial advice. Financing eligibility is determined only after a complete review of the borrower, the property, and the applicable lending guidelines in effect at the time of application.