Most buyers don't understand how buying a condo is different compared to buying a single-family home. The financing aspect is different as the lender will take into account the building and the buyer, not just the buyer.
Ever since the recession, the rules on how condo financing works have changed quite a bit. It can be harder to get some buildings to fit into the qualifications necessary when it comes to buying a condo. In fact, some Nashville urban condos simply won't fit when it comes to traditional loans.
Building Qualifications for Traditional Financing
If you want to buy an urban condo in Nashville, there are specific criteria the building will need to meet including:
- The HOA cannot have any pending lawsuits
- Financial reserves of the HOA must be acceptable
- The HOA cannot be managed by a single investor above 10%
- The building cannot have more than 20% occupied by commercial space
- The building must have less than 15% of the units 30 days or more delinquent on their HOA dues
In addition to these requirements, if the building allows short-term rentals, you will need specialty financings. The owner-occupancy ratios also come into play, depending on what you plan to do with the unit. If more than 50% of the units are owned by investors, it may be difficult to get financing if you plan to use the unit as a rental or a second home. However, investor ratios have been relaxed a bit for owner-occupants.
These qualifications may also vary just a bit from one lender to another. Just be aware, the lender will submit a Condo Questionnaire to the HOA of the building to ensure it conforms with their stated financing criteria.
Urban Nashville Condos Don't All Meet the Qualifications
Many of the urban condos found throughout Nashville won't meet the qualifications above. These are known as non-warrantable condos and they will require specialty loans in order to be purchased. The loans used for buildings not meeting the criteria are known as portfolio loans.
These types of loans are kept in-house by the lender and will never be sold to Freddie Mac or Fannie Mae for servicing. Only a few local lenders offer these specialty loans and they will likely not be as attractive as a conforming loan.
HOA Bylaws Becoming Friendlier
Many developers are helping out buyers by having attorneys change the HOA bylaws of their buildings to help make the building fit within the lender qualifications. Many are restricting the number of investor-owned units and capping the allowable number of investors between 20% and 50%. This has caused nearly all of the downtown Nashville condos to meet their investor cap and create a waiting list for these types of owners.
While this may help those looking to buy a downtown Condo as a primary residence, they hinder those looking to buy a condo as an investment. It's a bit of a Catch-22 and doesn't really have a good workaround right now.
What is a Condo?
In addition to all of the above, the banks have rules that vary from one bank to another when it comes to how they define a condo. Most of the time, the condo includes some type of element of vertical living, while a townhouse is horizontal in construction. However, it often comes down to how the property was deeded when the developer first created the papers and filed them. If it was called a condo, it's a condo, but it could have been called a Planned Unit Development, a Zero-Lot-Line Property or number of other names.
It's important to note, townhouses are usually easier to finance and rental ratios are not always considered. Some buyers, especially investors, will likely find it easier to buy a townhouse compare to a condo.
Choose Your Agent Wisely
If you're considering purchasing an urban condo in Nashville, you want to choose the right real estate agent. An agent without much experience with condos won't really be an asset during the process since buying a condo isn't the same as buying a single-family home. With an experienced agent, you'll be able to save time and get the advice you need when it comes to buying a condo.
There are several things to know about buying an urban condo in Nashville. However, the financing part of things is much different than buying a single-family house, which makes it a very good place to start. You want to make sure you understand the differences and hire a good Nashville real estate agent to ensure you're protected throughout the process.