Buying a condo on the beach isn’t quite like buying a house when it comes to money. With a house, the lender mostly looks at you and the home. With a condo, the lender also looks at the whole building and its association. That’s why some buyers sail through financing and others hit a wall weeks into a contract. Here is what to know before you fall for a unit.
Cash or loan
Some buyers pay cash, which avoids a lender’s building review entirely. If you’re financing, talk to a lender who regularly works with Florida condos before you start touring, and ask them to check the building as soon as you have a specific unit in mind.
Why the building matters to a lender
Most conventional loans are sold to Fannie Mae or Freddie Mac, which set standards for condo projects. Fannie Mae’s Selling Guide lists projects it treats as ineligible, including:
- Hotel-like projects. Projects that operate as hotels, motels or resorts, or that have features such as rental pooling, hotel services or restrictions on owners using their own unit.
- Projects needing critical repairs. Buildings with significant deferred maintenance, or repairs affecting safety, soundness or structural integrity, and buildings that have failed required inspections.
- Other characteristics such as heavy concentration of ownership or significant commercial space, which the guide also covers.
A condo that doesn’t meet these standards is often called non-warrantable. You can still finance it in many cases, but usually through a lender keeping the loan on its own books, often with a larger down payment and different terms. Condo hotels on the beach, such as the units in some resort buildings, are a common example, so ask early.
FHA and VA loans
For an FHA-insured loan, the condo project generally needs FHA approval, and the U.S. Department of Housing and Urban Development publishes a searchable list of approved projects. VA loans have their own approval process. If you plan to use either, check the building’s status before you make an offer.
The condo questionnaire
Lenders send the association a questionnaire asking about its budget, reserves, insurance, litigation, owner occupancy, delinquencies and any special assessments or planned repairs. The answers can decide your loan, so ask your agent to request the association’s documents as early as possible. Florida’s milestone inspection and reserve study rules for older buildings feed into this too. Our milestone inspections page explains them, and our condo buyer’s guide lists what to request.
Insurance your lender will require
- An HO-6 policy for your unit, alongside the association’s master policy.
- Flood insurance if the building is in a FEMA special flood hazard area and the loan is federally backed or regulated, which is a federal requirement. Our Flood Zones 101 guide explains the zones.
- Proof that the association’s master policy meets the lender’s standards.
Get quotes during your inspection period. Our Florida property insurance guide covers the policy types.
Closing costs on a loan
A mortgage adds Florida taxes to the closing: documentary stamp tax of 35 cents per $100 of the loan and nonrecurring intangible tax of 2 mills on the amount secured, according to the Florida Department of Revenue. Our closing cost calculator includes them.
A financing timeline for a condo
- Before touring: talk to a lender, get pre-approved, and ask which buildings they can and can’t lend in.
- When you find a unit: ask the lender to check the building and send the association questionnaire straight away.
- Under contract: order the appraisal, request the association documents, and get insurance quotes for the unit and any flood cover.
- Before your financing deadline: confirm the building review is complete and the loan is approved, or ask your agent about extending the deadline.
- Closing: review your closing disclosure and wire funds only after confirming instructions by phone.
Questions to ask the association
- Are there any special assessments approved or under discussion?
- When were the milestone inspection and reserve study completed, and what did they find?
- Is the association involved in any litigation?
- What does the master insurance policy cover, and what is the deductible?
- How many units are rented, and are there rental restrictions?
Our advice
- Pick the building first, then the unit. A great unit in a building lenders won’t touch narrows your options.
- Ask your lender to review the building before your offer, not after.
- Build extra time into the financing contingency for a condo, because the building review takes time.
- If you’re buying from out of state, our remote closing checklist helps with the logistics.
Please note: Laws, tax rules and insurance terms change, so check the details for your situation with a licensed professional, such as a Florida real estate attorney, insurance agent or tax adviser, before you act.
Browse our listings or contact us and we’ll help you check a building before you commit.
Sources
- Fannie Mae Selling Guide, B4-2.1-03, ineligible projects.
- U.S. Department of Housing and Urban Development, FHA approved condominium search.
- FEMA, flood insurance, federal flood insurance purchase requirement in special flood hazard areas.
- Florida Department of Revenue, documentary stamp tax and nonrecurring intangible tax.