Obtaining a Mortgage for a

Small Condo Hotel Unit

Q. Why is a condo hotel studio more difficult to finance if it is less than 500 square feet? Can you finance it just with 10% down payment? Is the interest rate going to be higher?

A. My deductive reasoning tells me that you are already having difficulty getting a loan. This makes me wonder why you have contacted a real estate broker instead of your own financing source to ask this logical question. I'm sure if your mortgage broker could not assist you, he could have at least answered why, right?

In any case, here's your answer. Lenders do not wish to finance "hotel rooms," just because they are called "condo hotels." Their logic says that because the developer sticks a refrigerator and a two burner stove in and calls it a kitchen, this does not make the unit a condo. If the hotel fails, the building could not then be converted into a traditional rental apartment or condominium.

With regard to size, 500 square feet seems to be the cut-off point as to whether a person could/would choose to live there full time, like a condo, or only for short stays, like a hotel.

As for interest rates, it seems that these days banks are requiring 20%, but some are moving towards 30%. The interest rate on condo hotels tends to be slightly higher than for primary residences. This is pretty typical for all second homes, not just condo hotels.

One quick piece of advice. If 10% is a stretch for you on a smaller unit, I'd suggest you save your money and don't buy a condo hotel. You may be spreading yourself too thin, and could find yourself in trouble if the unit does not generate adequate rent revenue to cover your expenses.

The above question was submitted via e-mail by a visitor to www.condohotelcenter.com. The answer was prepared by Joel Greene, a licensed real estate broker with Condo Hotel Center which specializes in the sale of condo hotel units and fractional ownerships in private residence clubs.