Are Mortgage Rates Higher for Condos?

Mortgage Q&A: “Are mortgage rates higher for condos?”

If you’re in the market for a new condo (as opposed to a house), you’re probably looking to save some money on your mortgage payment each month.

But condos typically come with higher mortgage rates and HOA dues, which should be factored into your analysis.

For example, most mortgage lenders charge a 0.75% mortgage rate pricing adjustment for a condo once the loan-to-value ratio exceeds 75 percent.

Put simply, if you can’t put down 25 percent of more on your condo, expect a higher mortgage rate.

This tends to be the case for conforming mortgages, jumbo loans and conventional mortgage loans.

Note that the pricing adjustment doesn’t mean your mortgage rate will/should be .75% higher, it just means the bank or mortgage broker will make less commission, and thus charge a higher rate accordingly.

So expect a mortgage rate maybe .125% or .25% higher if it’s a condo, and perhaps more if it’s a high-rise condo.

Why are mortgage rates higher on condos?

Well, condos are part of a larger complex, unlike a single-family home.

And each unit affects the whole project, so if several owners are unable to make payments (or if they’re vacant because of things like foreclosure or failure to sell), the other units will lose value.

Additionally, the HOA won’t get all the dues it expects, which puts the entire building at risk when it comes to things like maintenance.

Another thing to consider is the share of investment properties within the complex – more investors means more risk.

Finally, not all types of mortgage lenders offers condo financing, so less competition means higher rates.

FHA Loans on Condos

As far as FHA loans go, there isn’t a pricing hit for condos, but fewer condos are approved for FHA financing, meaning it might not be an option at all.

The FHA recently enacted a tough set of standards for condos, including strict zoning rules and policies where a certain number of units must be owner-occupied, sold before endorsement, and current on HOA payments.

Keep in mind that when it comes time to sell your precious condo, it’ll be more difficult to find a buyer as well.

That doesn’t mean you need to go out and buy a house, because that opens a whole ‘nother can of worms, but it’s something to think about.

Read more: Are mortgage rates higher for investment properties?