Richard Ruble's Blog

Condo vs. Condotel Financing: What You Need to Know

As a loan officer at VanDyk Mortgage, I often help homebuyers navigate the unique financing requirements for different types of properties. If you’re considering purchasing a condo or a condotel, it’s important to understand the key differences in financing options. While both offer great benefits, their loan requirements vary significantly due to how lenders assess risk.

Condo Financing: A Traditional Approach

Many buyers choose condos for their convenience, shared amenities, and potential affordability compared to single-family homes. However, financing a condo differs from purchasing a house because lenders evaluate not only your financial profile but also the financial health of the entire condo association.

Key Condo Loan Options

• Conventional Loans (Fannie Mae & Freddie Mac): Many condo buyers use conventional financing, but some condo projects must meet eligibility requirements, such as owner-occupancy rates and reserve fund adequacy.
• FHA & VA Loans: If you’re a first-time buyer or a veteran, FHA and VA loans can be great options. However, the condo must be on the agency’s approved list, which may limit your choices.

Factors Lenders Consider for Condo Loans

• Owner-Occupancy Ratios: Lenders prefer that a majority of units are owner-occupied rather than rented out.
• HOA Financial Health: The homeowner’s association (HOA) must be financially stable with adequate reserves.
• Litigation & Structural Issues: Pending lawsuits or structural concerns may impact loan approval.

Condotel Financing: A Different Set of Rules

If you’re looking at a condotel (condominium hotel) – a condo that operates with hotel-style amenities and short-term rental options – be prepared for stricter financing requirements. Lenders see condotels as higher-risk investments due to financing rental income and commercial-style operations.

Why Condotel Financing is Different

Unlike standard condos, condotels often operate like hotels, which typically makes them ineligible for traditional financing through Fannie Mae or Freddie Mac. Instead, borrowers must look at portfolio loans – custom loans offered by specific lenders.

Key Condotel Loan Considerations

• Higher Down Payments: Expect to put down 20-30% as condotels are considered investment properties.
• Shorter Loan Terms: Instead of a traditional 30-year mortgage, condotel loans often have terms of 15 or 20 years.
• Rental & Occupancy Restrictions: Lenders may prefer properties where owners use the unit frequently rather than solely renting it out.
• Hotel-Style Management: The more the property operates like a hotel (e.g., front desk check-in, daily housekeeping), the fewer financing options may be available.

Which Option is Right for You?

If you’re looking for a primary residence or vacation home, a traditional condo may be a good fit, offering more accessible financing options. If you’re purchasing for investment and short-term rental income, a condotel can be a great opportunity – but you’ll need to be prepared for higher down payments and different loan terms.

Let’s Find the Loan for You!

At VanDyk Mortgage, we specialize in helping buyers finance both condos and condotels. Whether you’re a first-time homebuyer or an investor, I can guide you through your options and help you secure a financing solution for your unique scenario. Let’s connect today to discuss your goals and see what loan options may be available to you!