Can You Refinance a Condo?
Rebecca, a freelance editor for LendingTree, is a marketing and content specialist who has worked in the personal finance space since 2017. A graduate of Millersville University of Pennsylvania, she received a degree in English with a minor in journalism. As a Taurus, Rebecca struggles with budgeting and tends to live by a “treat yourself” mindset. She’s working on it.
The short answer is yes, you can refinance a condo, but it is important to know that there are several additional factors to consider when refinancing a condo mortgage versus a traditional home mortgage, making the process potentially more complicated. If your condo is eligible, refinancing could be a great option to get a lower interest rate or change your loan term.
Whatever your reason is for refinancing your condo, it is important to learn if you qualify and what factors make that determination.
Why should I refinance?
There are many reasons why someone might want to refinance their home. Whether you want to shorten your loan timeline or decrease your monthly payment, there are pros and cons to consider.
Lowering your interest rate
If market conditions have shifted or your credit score has improved, you may be able to get lower condo interest rates on your mortgage. A lower interest rate directly influences how much you owe each month and on the life of your mortgage. In general, the lower your interest rate, the lower your monthly payment.
Ultimately, if you have the opportunity to get a lower interest rate on your mortgage, it can be extremely valuable and save you thousands on the life of your loan.
Adjusting mortgage timeline
When adjusting the term of your mortgage, you can either choose to either:
- Increase the term of your mortgage to lower your monthly mortgage payment but to also mean continue making payments for a longer period and likely end up paying more over the life of the loan from interest.
- Decrease the term of your mortgage to lower the interest rate on the loan and to pay off the loan sooner but also have a higher monthly payment that results from the shortened timeline.
Refinancing a condo loan vs. home loan
The process of refinancing a traditional home and refinancing a condo are generally the same. The key difference of condo refinancing is the additional checks that need to be made with a condo owners association (COA). According to John Stearns, a senior loan officer at American Fidelity Mortgage Services, Inc., this can include:
- A completed condo questionnaire from the condo board which will answer:
- How many units are in the COA
- How many units have been sold in the COA
- How many units are occupied in the COA
- If there’s any pending litigation against the COA
- Copy of the budget for the COA
- Underwriters need proof that they are successful in collecting their HOA fees
- What are the condominium fees?
- Is an expense not seen with a home considered by underwriters
- COA insurance proof
- To make sure the property is insured
Other than the paperwork from the COA, you will need certain items regardless of your type of home. Ashley Taylor, a loan officer at Residential Mortgage Services, Inc., advises clients to gather:
- One month of pay stubs
- Two years of W-2s and federal tax returns
- Two months of bank statements
- A copy of your homeowners insurance policy
- A recent mortgage statement.
- List of outstanding debts including:
- Car loans
- Personal loans
- Student loan debt
What makes a condo ineligible for a new home loan?
Sandra Shaud, a 30-year veteran of the mortgage industry, says Fannie Mae and Freddie Mac will not finance or refinance mortgages in condo units that have certain characteristics. Fannie Mae has an extensive list of items that make a property ineligible for refinancing. If your property checks off one of these items, then it may be extremely difficult or not possible to refinance. These items include:
- Timeshare, fractional or segmented ownership projects.
- Projects that are owned and operated as a hotel or motel
- Investment securities
- Projects that include split-ownership arrangements
- Projects with mandatory membership fees for amenities owned by a third party, such as golf courses or country clubs
- Units that allow owners to divide their unit into multiple smaller units
- Units that are not actually real estate (e.g. houseboats, cabanas, etc.)
- Properties with additional business arrangements, such as a spa or health club
- Properties where the homeowners association is named as a party to pending litigation
- Projects with a lien for unpaid expenses
- Projects with more than 25% of commercial space
- Projects with non-conforming land use
- Rehab projects that weren’t preapproved by Fannie Mae
- New projects for attached units in Florida
- Manufactured homes that weren’t preapproved by Fannie Mae
What do I need before I refinance my condo?
In addition to not having any ineligibilities on your condo, there are some other characteristics that your condo must meet including:
- The condo must meet applicable insurance guidelines per Fannie Mae and/or Freddie Mac
- Your condo unit must be covered by title insurance
- Unit owners who want to refinance must have undivided ownership or interest on the land where the project is located
- Unit owners must have sole rights to and ownership of common areas in their condo unit
- Note the limits on the number of condominium units that can be rented out; a maximum of 90% of condos must be a primary residence and not investment property. (In Florida, only 75% must be primary residences).
How to prep for your condo refinance
Do not worry about whether your property meets Fannie Mae and Freddie Mac standards. Shaud says it’s the job of your mortgage lender to determine whether your condo is eligible for a traditional home loan, so you can sit back and let them do the work.
In the meantime, there are plenty of things to do to prepare for your refinance:
Compare with other condos nearby to ensure you have enough equity
According to Shaud, figuring out what your condo may be worth with a condo appraisal can be important. This is since you usually need at least 5% home equity to refinance. Looking at condos in your neighborhood can help you see if your condo’s value has gone up, down or stayed the same. Although this can be done online, Shaud says your mortgage lender or a real estate agent could also help you find comparable condos in your area.
Make sure a refinance would leave you better off
Is a refinance worth the trouble? Shaud says you should have a clear reason. Can you lower your interest and save money over time? Can you get a lower monthly payment? Do you want to pay off your loan in 15 instead of 30 years? Ask what benefit you want before refinancing.
“Refinancing doesn’t make sense unless there is some benefit to you, so don’t spend your time on it if you don’t have a clear goal,” says Shaud.
Consider the costs of refinancing
Most borrowers should expect some fees, making the cost an important factor to consider when determining whether to refinance. Remember, a government program, such as the Federal Housing Administration, may help keep refinancing costs down if you qualify.
Calculate your new payment
Once you know your refinancing goals, a mortgage calculator can help you estimate what your new loan might look like. A mortgage calculator can help you see what a different timeline or interest rate might do to your mortgage payment.
Check to see if your credit score is in good shape
Mortgage lenders tend to offer their best condo loan rates and terms to those with “very good” pr “excellent” credit — or a FICO Score over 740, according to myFICO.com.
If you currently fall short on your credit score, taking time to improve your credit before you apply for a condo refinance could be worth it. Steps, such as paying bills on time and paying down debts, can all give your credit score a boost.
Gather the required documents you’ll need to refinance
By having your necessary paperwork ready, you can ensure a much faster experience once you take the steps to apply for a condo refinance with a lender.
Getting offers on your condo refi
Once you have determined you have the equity, credit score and condo type to meet the Fannie Mae and Freddie Mac refinancing standards, you will need a trusted lender. Taylor advises borrowers to expand their reach beyond lenders who offer conventional condo loans. Compare loans and their terms, including interest rates and applicable fees.
“Make sure you’re making an apples-to-apples comparison of each lender, and read reviews,” Taylor says. Several websites allow users to submit their information once and receive multiple offers; this includes LendingTree, where you may read online reviews from the comfort of your couch.
Do you qualify for a program that helps homeowners refinance?
There are several programs in place that may help certain homebuyers navigate through refinancing, including:
- Fannie Mae High LTV Refinance Option (HIRO): An option for underwater borrowers to refinance their Fannie Mae-owned mortgage to reduce their monthly payment, lower their interest and/or make their loan more stable. Another benefit is that there are simplified documentation requirements and the manual underwriting options are available to the current or new servicer.
- Freddie Mac Enhanced Relief Refinance (FMERR): Allows mortgage borrowers with loans owned by Freddie Mac to refinance their mortgages. This is for borrowers who are making their payments on time but are unable to refinance due to the declining value of their home. It is an option for all property types and a wide range of mortgage types. Note that to qualify, you can’t have been 30 days delinquent on your mortgage payment in the last six months.
- FHA Streamline Refinance: If your condo was purchased with a FHA loan, a FHA Streamline Refinance could help with getting a new mortgage with less underwriting and less strict credit requirements.
- VA Interest Rate Reduction Refinance Loan: Easy option where the one requirements are you must be refinancing an existing VA loan, you must have stayed current on your mortgage payments for at least the last 12 months, and the home you’re refinancing must be (or must have been) your main place of residence.
- USDA Streamlined Refinancing: Easy option where you must have an existing USDA mortgage, you must have stayed current on your mortgage payments for at least the last 12 months, and the new rate must be lower than the former.