Financing a condominium purchase involves unique considerations that differ from single-family home mortgages. Condo loans typically require stricter approval due to the shared ownership structure and associated financial interdependencies. Whether considering a luxury development like River Modern or a more modest property, understanding your financing options can save you thousands while securing terms that align with your financial goals.
Conventional loans demystified
Conventional loans remain the most common financing option for condo purchases, offering competitive interest rates and flexible terms for qualified buyers. Project approval status falls into several categories that determine financing availability. Warrantable condos meet all Fannie Mae and Freddie Mac requirements, offering access to the best conventional loan terms.
Non-warrantable properties fail to meet one or more guidelines—perhaps due to high rental percentages, pending litigation, or inadequate reserves—and require alternative financing at less favourable terms. Many lenders offer conventional loans with down payments as low as 3-5% for primary residences, though these lower down payment options typically require private mortgage insurance (PMI) until you reach 20% equity. Investment properties and second homes generally require larger down payments, often 15-25%, reflecting their higher risk profile for lenders.
Government-backed alternatives
FHA loans provide valuable options for buyers with limited down payment funds or credit challenges:
- Down payments as low as 3.5% with credit scores of 580+
- More flexible debt-to-income ratios than conventional loans
- Lower credit score requirements (potentially as low as 500 with larger down payments)
- Mortgage insurance is required for the loan’s entire term
The major drawback of FHA financing involves the project approval process, as fewer condo developments maintain current FHA approval. The approval process examines financial stability, owner-occupancy rates, and other factors determining the project’s risk profile. Buyers should verify a development’s FHA approval status early in their search to avoid disappointment. VA loans offer exceptional benefits for eligible veterans and service members, including zero down payment requirements and no mortgage insurance. These loans also feature competitive interest rates and limited closing costs. Like FHA options, condos must appear on the VA-approved list, creating potential hurdles for some properties despite the buyer’s qualification.
Portfolio loan advantages
Portfolio loans, which lenders keep on their books rather than selling to secondary market investors, offer valuable alternatives for non-warrantable condos or unique buyer situations. These loans provide greater property and borrower qualification flexibility, as lenders establish their guidelines rather than following Fannie Mae or Freddie Mac requirements. This flexibility comes with tradeoffs, typically higher interest rates (often 0.5-1% above conventional rates), larger down payment requirements (commonly 20-25%), and potentially shorter loan terms. Some portfolio lenders offer creative structures like interest-only periods or balloon payments that can benefit specific financial strategies despite their higher long-term costs.
Financing new developments
New construction condos present unique financing challenges and opportunities. Many developers partner with preferred lenders offering special incentives and streamlined approvals for their projects. These arrangements can include closing cost credits, rate buydowns, or specialised loan products designed for the specific development. Pre-construction purchases typically require different financing approaches from those of completed units. Developers often request larger deposits (10-20% of purchase price) held in escrow during construction. When construction completes, these deposits apply toward your down payment, with traditional mortgage financing covering the remaining balance.
Jumbo loans face stringent condo project approval requirements, with lenders carefully examining association finances, owner occupancy rates, and property condition. Many lenders impose their requirements beyond standard warrantability guidelines, creating additional hurdles for some luxury developments despite strong borrower qualifications.