Financing
Your Condo Hotel Unit
By Oren Orkin
A condo hotel (AKA condotel) is a
great way to own a luxurious vacation home without
the traditional hassles of ownership such as property
maintenance and finding renters when you're not using
it.
Buying this type of property is similar
to purchasing a typical condominium. However, there
are a few extra considerations that lenders evaluate
when underwriting the loan. Consider the following
frequently asked questions about condo hotel unit
financing.
How do I qualify
for a condo hotel loan?
Most lenders qualify you based on your income and
underwrite the file as if it was an investment property.
Unlike traditional residential deals, the lender will
not count potential rental income from the property
for qualifying purposes.
What is the
debt-to-income ratio allowed when buying a condo hotel
unit?
Overall debt-to-income ratio should be no more than
45%.
Do lenders need
to approve the project itself?
Depending on the type of financing you require, the
lender may need to pre-approve the project in order
to allow certain terms on the loan. Condo hotels are
particularly common to urban, popular tourist cities
such as Las Vegas, Miami and Chicago so buying a unit
in those kinds of location should be straightforward.
Are there any pre-sale requirements?
Most lenders like at 75% of total units under contract
before financing a unit in that project. However,
certain lenders do not have any pre-sale requirements
as long as they have pre-approved the project.
What if there
are commercial spaces such as retail and restaurants
in the project?
As long as the commercial space and usage is limited,
is typical to that area and project, and the project
is residential in nature, most lenders will finance
your deal.
Are there any minimum
unit size requirements?
Most lenders require units to be at least 600 sq.
ft., as the larger the unit, the more desirable it
is for rental and resale. Some lenders will wave minimum
size requirements as long as the project is pre-approved.
Others will require that condo hotel units have at
least basic kitchen facilities.
Are there any minimum
down payment requirements?
Condo-hotels buyers are usually required to put a
minimum of 20% down payment although a higher down
payment could be required on a larger purchase price.
As an example, a lender would offer 80% LTV (loan
to value) up to a $350,000 loan amount and $437,5000
maximum purchase price; 75% LTV up to a $650,000 loan
amount and $867,000 maximum purchase price; and 45%
LTV up to $1 million loan amount and $2.22 million
maximum purchase price.
In general, secondary financing is
not allowed.
What kind
of documents will I need to get pre-approved?
Just like any other residential loan the lender will
require documentation about your income and assets
and will check your credit (an average middle FICO
score of approximately 680 is required though exceptions
on lower scores can be made).
Self-employed buyers with complicated
or extensive tax returns can qualify using a stated
income program, hence streamlining the loan approval
process. An interest-only option payment is also available
when the buyer is qualified based on interest-only
payments.
In order for a buyer to get approved
for financing for the purchase of a condo hotel, the
property must be a fee simple or a leasehold property:
- Fee simple:
Absolute ownership in real property; owner is entitled
to the entire property with unconditional power
of disposition during the owner's life.
- Leasehold:
Estate or interest in real property held by the
virtue of a lease. Leasehold refers to land which
is leased to the individual(s) who owns the structure.
This article was provided by Oren Orkin of Capital
Funding Mortgage Company, LLC, a residential and commercial
lender that can provide financing for condo hotel
units. For more information, contact Oren at (312)
867-5363 x206 or by email at oorkin@capfundmtg.com.
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