What are you actually buying, a condo or a town house?

Looks like a townhome, acts like a townhome - but its a condo, and that makes a big difference in mortgage financing!

People, including many Real Estate Agents, mistakenly assume a property legally platted and developed as a condominium is a town house. In the mortgage financing industry, there is a difference in both interest rates, and the time and ability to get a loan for a condo versus a town house.

When you buy a home, there are two major aspects:

1. The lender "credit qualifies" the buyer
2. The lender "qualifies" the home with an appraisal.

What many people miss is that if you are buying any property with an association (townhome or condo), the lender also has to qualify the association.

A townhome, often referred to in the industry as a PUD (planned unit development) is much easier to get approved, and the interest rate the buyer receives is usually the same as a single family home.

A condo on the other hand is much different. The interest rate depends on the down payment, number of stories, and a few other factors. It is usually 1/8th (.125%) to 1/4 (.25%) HIGHER than a single family home. Furthermore, the process to approve a condo association is much more complex, takes significantly longer, and usually requires the buyer to pay $200 - $300 in additional fees to get the documents from the association the lender needs to approve the loan.

Should this scare you away from buying a condo? Of course not.

Financing rates and options depend on your knowing ... Condo or Townhouse? Does your mortgage lender know the difference? Does your agent? Do they take the time and make the effort to find out? If not, you're working with the wrong person ...

You can save a lot of headache and hassle down the line if you know the rules, and if you are working with a Realtor and Mortgage Loan Officer who understands the differences, and can properly guide you along your way to a successful home purchase.

We lend in MN and WI only.Joe Metzler - Mortgages Unlimited, St Paul, MN NMLS #274132.