How To Refinance Your Condo

If you own a condominium and want to refinance your mortgage, you'll need to meet two sets of loan guidelines: one that applies to you and another that applies to your condo owners' association.

The rules for you are essentially the same regardless of the property type, but the rules for your association can create issues when refinancing your loan, says Joe Metzler, a mortgage specialist with Mortgages Unlimited in St. Paul, Minn.

The first issue is whether your condo has been approved for conventional (Fannie Mae or Freddie Mac) or FHA financing. Approval is required because your association is essentially a third-party involved in refinancing your loan and that involvement adds "an additional element of risk" for the lender, Metzler explains.

If it is approved, your condo refinance can go forward. If not, you'll probably need to get approval before you can proceed. The process is "actually fairly easy," Metzler says, if, that is, your association's financials are in OK shape and your neighbors don't include legions of foreclosures or non-owner occupied rental units. If not, approval could be difficult or impossible, which would derail your condo refinance.

Condo questionnaire

The lender also will require a so-called condominium questionnaire. The most important questions typically concern the percentage of owners who occupy their units, association reserve accounts and whether the association is involved in any litigation, according to Justin Lopatin, vice president of mortgage lending at PERL Mortgage in Chicago, Ill.

"Most of the time, there needs to be over 51 percent owner-occupancy in the building," Lopatin explains. "If there is a shortage of reserves or, typically, 15 percent of the unit owners are past due on their association dues or assessment fees, that can be a hindrance."

The FHA recently relaxed its guidelines to allow up to 15 percent of the owners to be 60 or more days delinquent. Previously, the guidelines used a 30-day threshold.

Appraisal comps

Another issue concerns how much equity you have in your condo. Equity is a function of your loan amount and the value of your property, and is usually determined by some form of an appraisal. An appraisal can prove problematic if condos similar to yours were sold within the last six months at prices that don't support your loan amount.