Financing Your Condo, Co-Op, or Townhouse

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Finding a condo, co-op, or townhouse to call home is hard enough, but finding financing to buy this kind of property is even more challenging. As a veteran mortgage banker and author of Mortgages 101, David Reed has helped thousands of buyers through this complicated process. Financing Your Condo, Co-op, or Townhouse offers readers invaluable advice, including information on developer financing, specialty loans, government programs and refinance loans, streamlining the approval process, appraisals, closing costs, and more. Readers will discover:

• the differences among condos, co-ops, and townhouses

• how to find the right type of property for them

• the rules governing loans for condos, co-ops and townhouses

• how to evaluate which loan type is best and lock in the lowest  rate

• why the percentage of owner-occupied units is important

• what to consider when buying new construction or conversion properties

• the financial considerations unique to each type of home

Whatever the property, whatever the question…this handy guide to financing has the answers.

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Editorial Reviews

From the Publisher

“…offers valuable information for any real estate investor on dealing with agents, mortgages of all types, refinancing and closing costs.” -- Associated Press

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Product Details

  • ISBN-13: 9780814480625
  • Publisher: AMACOM Books
  • Publication date: 6/24/2009
  • Edition description: New Edition
  • Pages: 240
  • Product dimensions: 5.90 (w) x 8.90 (h) x 0.80 (d)

Meet the Author

David Reed (Austin, TX) is the author of several books including Mortgages 101(978-0-8144-0166-8), Mortgage Confidential (0-8144-7369-6), The Real Estate Investor’s Guide to Financing (978-0-8144-8061-8), and An Insider’s Guide to Refinancing Your Mortgage (978-0-8144-0935-0). As a senior loan officer, he has closed more than 2,000 mortgage loans. He is a columnist for Realty Times and a contributing editor and columnist for Mortgage Originator magazine

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Read an Excerpt

Chapter 1

Condos, Co-ops, and Townhouses: How Are They Different and How Are They Similar?

So you want to own a condo, eh? Live the urban lifestyle,

park the car, and walk to work. You know, all the “condo”

things. Condominiums first began to take hold in the real

estate marketplace in the late 1970s, offering an alternative to

the often more expensive single-family residence.

Or is a “cooperative” or “co-op” in your plans? Co-ops, found

in most major (primarily East Coast) cities, offer a similar alternative

to apartment or single-family homes. Although co-ops

are similar to condos, they’re not the same as condos.

Townhouses, too, are just a tad different from traditional

single-family residences. They also are grouped into a legal

“community” that has certain rules similar to condominium or

co-op arrangements (we’ll discuss those rules in detail in chapter

5) yet appear more like a traditional single-family structure.

Either way you decide, condos, co-ops, and townhouses represent

different lifestyles and offerings from living in a suburban

or rural home.

But first, exactly what is a condo, a co-op, or a townhouse?

Technically, a condo is a legal association in which the individual

owns the interior of his or her own unit and the entire

group equally shares ownership in the common areas of the


This condominium association is charged with enforcing

the rules and regulations set forth in the condominium’s legal

documents called Covenants, Conditions and Restrictions, or

CC&Rs, which we’ll examine in more detail in chapter 5.

When you first imagine a condo, you might think of a tall,

downtown building encasing lots of individual living spaces.

And in many instances that would be correct. But a condo doesn’t

have to be all in one building, or be tall or short. A condo may

consist of separate buildings, some connected, some not. A

condo can be a collection of single-family residences that from

the outside don’t look like a typical condominium at all. In other

words, you can’t recognize a condo just by looking at it.


There are different types of condos, and some of the differences

can affect the type of financing you obtain. There are:

-- High-rise, mid-rise, and low-rise

-- One- to two-unit condos

-- Condominium conversions

-- Condotels

High-Rise, Mid-Rise, and Low-Rise

These terms refer to how many stories, or floors, there are in

the project. A low-rise is typically one to three stories high, a

mid-rise is four to nine stories, and any condo more than nine

stories is a high-rise. Typically, high- and medium-rise condominiums

are found in downtown, urban areas.

Sometimes lenders will require a bigger down payment for a

high-rise condo than for a low- or mid-rise. Financing a highrise

could result in a higher interest rate or an additional lender

fee as well.

One- to Two-Unit Condos

Sound a bit odd? Why would anyone have a one- or two-unit

condo? What’s the point? In fact, this trend began when people

figured out they could buy a stand-alone duplex (two attached

houses) or a fourplex—four separate houses—all connected.

The idea caught on when turning a duplex into a two-unit

condo made sense. The owner could buy the duplex, turn it

into condos, and sell those condos separately instead of selling

the duplex all at once. The same goes for a triplex or for a fourplex.

A buyer acquires a multiunit structure, does all the legal

work to turn it into condos, then sells them one by one, which

often results in more profit for the seller. However, there is little

demand in today’s real estate market for one- or two-unit

condos compared to single-unit, owner-occupied real estate.

Condominium Conversions

A conversion is typically an apartment building that has been

turned into condominiums. Lenders may have special condoconversion

guidelines that the developer must meet. For

example, making sure the condos have separate firewalls or

stipulating that other recent conversions in the area must be

80 percent presold (which means that if there are 100 units, 80

of them must already have sales contracts on them).

You can’t recognize a condominium conversion just by looking

at it. Nor can you tell whether your lender will put any special

conditions on it. But a little advance research will tell you.


One can probably guess what a condotel is: a condominium

complex where individuals own the condos, but some or most

are rented out by the day, week, or month, just like a hotel.

In this case, you can tell a condotel when you see it because

it will have a check-in desk and hotel-like amenities. Few

lenders make loans on condotels.

Common Areas

Condominiums have common areas such as sidewalks, swimming

pools, recreation rooms, and health clubs. These common

areas belong to the condo owners. No, you may not remove

“your section” of the sidewalk and haul it upstairs. You may not

claim a stake in your 1/100 of the pool and make the other

swimmers keep out. Everyone owns the structure and amenities

equally, as well as the land where the structures stand.

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Table of Contents


Preface vii

Chapter 1 Condos, Co-ops, and Townhouses: How Are They Different and How Are They Similar? 1

Condos 2

Co-ops 5

Townhouses 6

The Lifestyle 9

The HOA 12

Lawsuits, Fees, and HOAs 15

Chapter 2 What to Look for in a Property and How to Find the One That’s Right for You 17

Using a Realtor 18

Buying from a Developer 21

Chapter 3 Financing Your Condo, Co-op, or Townhouse the Right Way 29

Fixed-Rate Mortgages 30

Adjustable-Rate Mortgage 36

The Hybrid 39

Option ARMs and Negative Amortization 42

How Mortgage Rates Are Set 44

How Lenders Set Their Rates 47

Types of Mortgage Lenders 48

How to Find the Best Loan Officer 57

How to Find the Best Rate 62

Factors That Can Affect Your Rate Quote 71

How to Change Mortgage Companies Midstream 77

How to Lock in the Mortgage Rate 79

Debt Ratios and How Lenders Calculate Them 83

Chapter 4 Specialty Loans, Government Programs, and Refinance Loans 85

Interest Only 85

Equity 87

No Money Down 88

Government Bond Programs 89

Portfolio 90

Refinancing 91

Government Programs for Condos and Townhouses 104

Down Payment Assistance 113

Chapter 5 Rules Governing Loans for Condos, Co-ops, and Townhouses 115

Warrantable Versus Nonwarrantable Projects 122

Chapter 6 The Impact of Credit on Your Ability to Buy a Condo, Co-op, or Townhouse 127

Check Your Credit First 132

Find Out Your Credit Scores 136

Credit Score Facts and Fallacies 143

Credit Scores and Qualifying 147

Repairing Credit 149

Alternative Credit 155

Bankruptcies and Credit 156

Subprime Mortgage Loans 158

Chapter 7 Closing Costs: What They Are and How to Negotiate Them 161

Appraisal 162

Credit Report 165

Application Fee 165

Tax Service 166

Flood Certificate 167

Lender Fees 167

Mortgage Broker Fees 168

Settlement or Closing Fee 168

Title Insurance 169

Document Fees 170

HOA Fees 171

Attorney Fees 171

Courier Fees 172

Government Fees 172

Prepaid and Nonprepaid Items 174

Good-Faith Estimate 175

Using the Annual Percentage Rate to Compare Lenders 179

Negotiating Closing Costs 182

Fees and Refinancing 184

No–Closing Cost Mortgage 185

Appendix: Monthly Payment Schedules 187

Glossary 193

Index 221

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