To buy a condo for the first time, get pre-approved for a mortgage, find a unit in a building that qualifies for financing, review the homeowners association’s finances and rules during your due diligence period, and then move through inspection, appraisal, and closing. The process tracks a house purchase up to a point, but with one major difference: your lender approves both you and the building, and the building’s financial health can make or break the deal.
You are buying the interior of your unit outright and sharing ownership of the structure and common areas with every other owner through the HOA. That shared piece is where first-time buyers get caught off guard, both at the closing table and years later when a special assessment shows up.
Get Pre-Approved Before You Tour Anything
A pre-approval letter tells sellers you have confirmed financing and keeps you from touring units you cannot actually afford. To issue one, a lender needs federal tax returns for the most recent filing year, W-2s, pay stubs from the last 30 days, and two to three months of statements for every checking, savings, and investment account you own.1Fannie Mae. B1-1-03, Allowable Age of Credit Documents and Federal Income Tax Returns Bank statements verify you have the cash for the down payment and closing costs, and they surface any large unexplained deposits.
If a family member is helping with the down payment, you need a gift letter identifying the donor, stating the amount, and confirming that no repayment is expected. The gifted funds cannot later be paid back from mortgage loan proceeds.2Fannie Mae. Selling Guide March 4, 2026
Two numbers do most of the work in a pre-approval decision. Your credit score sets both eligibility and rate: most conventional loans require at least 620, while FHA loans accept scores as low as 580 with 3.5% down, or 500 with 10% down. Your debt-to-income ratio compares total monthly debt payments to gross monthly income. For manually underwritten conventional loans, Fannie Mae caps this ratio at 36%, though strong credit and reserves can push it to 45%. Loans run through Fannie Mae’s automated underwriting can stretch to 50%.3Fannie Mae. B3-6-02, Debt-to-Income Ratios
Confirm the Building Qualifies for Financing
This is where condo buying diverges from house buying. To qualify for a standard Fannie Mae or Freddie Mac loan with the better rates and lower down payments that come with it, the project itself must be “warrantable.” Buildings that fail these standards are “non-warrantable” and typically require portfolio loans with higher rates and larger down payments.
Several things push a building into the non-warrantable column. Fannie Mae will not purchase loans in projects where a single entity owns more than 20% of the units in buildings with 21 or more units, or where more than 35% of the total space is commercial or mixed-use. Pending HOA litigation involving safety, structural soundness, or habitability also disqualifies a project, unless the dispute qualifies as minor under Fannie Mae’s criteria, for example when insurance covers the defense and damages or anticipated costs stay under 10% of funded reserves.4Fannie Mae. Ineligible Projects
Owner-occupancy matters too. For investment property loans, at least 50% of the units must be owned by people using them as a primary residence or second home.5Fannie Mae. Full Review Process A building weighted heavily toward investor rentals signals risk to lenders.
You can check government-backed eligibility before you get emotionally attached to a unit. FHA-approved projects appear in HUD’s searchable database,6HUD.gov. Condominiums and VA-eligible projects appear in the VA’s condo report tool.7Veterans Home Loan Guaranty Program. LGY Hub Condo Report
Read the HOA Documents Before You Make an Offer
The costliest surprises in condo ownership hide in documents most first-time buyers skim. Before making an offer, or during your contractual due diligence period, request the association’s financial statements, reserve study, board meeting minutes, and governing documents.
Pull the financial statements from the last two to three years. You want to see whether assessment income covers operating expenses, whether the association has been running deficits, and whether the reserve fund is adequately funded. Well-managed buildings typically hold reserves at 70% to 80% of what a professional reserve study recommends. That study estimates the remaining useful life of major components like the roof, elevators, and plumbing, and calculates how much the association needs to save each year. Lenders require that at least 10% of the annual budget go toward reserves.5Fannie Mae. Full Review Process Many states mandate reserve studies on a set schedule, ranging from annual updates to every five or ten years depending on the jurisdiction.
Board meeting minutes from the last 12 months tell you what the numbers cannot: repeated water intrusion, deferred maintenance, owner disputes, or upcoming special assessments. References to construction defect attorneys or pending insurance claims are worth investigating.
The Covenants, Conditions, and Restrictions, usually called CC&Rs, together with the bylaws, govern pet rules, rental limits, exterior modifications, and how the board is elected. You are legally bound by these the moment you take title, so read them before closing, not after.
Offer, Inspection, Appraisal, and Project Review
When you find a financeable unit in a building whose numbers hold up, you submit a written offer stating your price, down payment, and contingencies. Standard contingencies protect your financing, inspection, and HOA document review. If the seller accepts, you put up an earnest money deposit of 1% to 3% of the purchase price, held in escrow and credited toward closing costs.
The Inspection Covers Your Unit, Not the Building
A condo inspection focuses on the interior: plumbing, electrical, HVAC, appliances, windows, and interior finishes. The roof, foundation, exterior walls, and common systems are the HOA’s responsibility and sit outside the inspection scope. Ask your inspector to flag anything that hints at a building-wide problem, like ceiling water stains suggesting roof issues or cracks that suggest settling. Those observations become questions for the board.
Appraisal and the Lender’s Project Review
Your lender orders an appraisal using Fannie Mae Form 1073, designed specifically for individual condo units.8Fannie Mae. Appraisal Report Forms and Exhibits The appraiser looks at your unit, the condition of common areas, and recent sales of comparable units in the same building. If the appraisal comes in below your offer, you negotiate a price reduction, cover the gap in cash, or walk away.
Separately, the lender sends a project questionnaire, typically Fannie Mae Form 1076 or Freddie Mac Form 476, to the HOA or management company.9Freddie Mac. Condominium Project Questionnaire Full Form It asks for detailed information on finances, insurance, litigation, owner-occupancy ratios, and commercial space. The association typically charges around $250 to complete it, more for rush orders. The responses drive the warrantability determination.
While that is in motion, the title company searches public records to confirm no liens, unpaid taxes, or ownership disputes cloud the title.
Closing Costs and the Three-Day Rule
At least three business days before closing, your lender must deliver a Closing Disclosure with your final rate, monthly payment, and every closing cost itemized.10Consumer Financial Protection Bureau. What Should I Do if I Do Not Get a Closing Disclosure Three Days Before My Mortgage Closing? Compare it line by line against your original Loan Estimate. If the APR on a fixed-rate loan rises by more than one-eighth of a percentage point, the lender must issue a revised disclosure and restart the three-day review.11Consumer Financial Protection Bureau. Know Before You Owe: You’ll Get 3 Days to Review Your Mortgage Closing Documents
Closing costs typically run 2% to 5% of the purchase price. Expect title insurance, recording fees, prepaid property taxes, and, in some states and cities, real estate transfer taxes that can add materially to your total. Ask your closing agent about transfer taxes early so nothing surprises you at the table.
The Recurring Costs First-Time Condo Buyers Underestimate
Your mortgage payment is only part of what you owe every month. Three other costs deserve line items in your budget from day one.
Mortgage Insurance If You Put Less Than 20% Down
If your down payment is under 20% of the purchase price, you pay mortgage insurance on top of principal and interest, and it can add hundreds of dollars a month. On conventional loans, private mortgage insurance typically runs 0.5% to 1.5% of the loan amount annually, with the rate driven by your credit score, down payment, and loan term. PMI drops off automatically once your loan balance reaches 78% of the original property value, and you can request cancellation at 80%.
FHA loans use a mortgage insurance premium instead. You pay 1.75% of the loan amount upfront at closing, which most borrowers roll into the loan, plus an annual premium of roughly 0.55% for the life of the loan if you put down less than 10%. With 10% or more down, the annual premium ends after 11 years. This ongoing cost is a real difference between FHA and conventional financing that gets lost when buyers compare only down payment requirements.
HOA Fees and Special Assessments
Monthly HOA fees fund common-area insurance, landscaping, management, shared utilities, and reserve contributions. They vary widely by building and should sit alongside your mortgage payment in your budget.
Special assessments are the ones that hurt. When reserves cannot cover a major repair, like a new roof, elevator overhaul, or plumbing replacement, the board charges each owner their share. Bills can reach thousands or tens of thousands of dollars, and they are mandatory; unpaid assessments can trigger a lien on your unit. This is the reason to take the reserve study and meeting minutes seriously before you buy. A well-funded building is far less likely to hit you with a surprise bill.
Your HO-6 Insurance Policy
The HOA’s master policy covers the building’s structure and common areas, plus liability for accidents in shared spaces. It does not cover anything inside your unit. That gap is filled by an HO-6 policy, the condo owner’s equivalent of homeowner’s insurance. An HO-6 covers the interior from the drywall in, built-in fixtures, personal belongings, liability inside your unit, and additional living expenses if a covered loss makes the unit uninhabitable. It also includes loss assessment coverage, which helps pay your share when the HOA assesses owners after a covered event like a fire or storm.
How much dwelling coverage you need depends on the master policy:
- All-in policy: covers the unit’s structure as originally built, including original fixtures, cabinetry, and appliances. Your HO-6 only needs to cover your upgrades and personal property.
- Bare-walls policy: covers only the structural shell. Your HO-6 must cover everything inside, including flooring, cabinetry, lighting, and built-in appliances, and requires significantly more dwelling coverage.
Your lender will require an HO-6 policy if the master policy does not adequately cover the interior, with enough coverage to restore the unit to its pre-loss condition.12Fannie Mae. Individual Property Insurance Requirements for a Unit in a Project Development Ask the HOA for the master policy’s declarations page before closing so you can size your HO-6 correctly.
What You Actually Own
When you buy a condo, you hold fee simple ownership of the airspace inside your unit’s walls. Exterior walls, roof, hallways, elevators, and grounds are common elements owned collectively by all owners through the association, and the master deed or declaration recorded with the local government spells out where your ownership ends and the association’s begins.
Between the two sit limited common elements, which are shared property reserved for one owner’s exclusive use, such as a balcony attached to your unit, a designated parking spot, or a storage locker. You use them exclusively, but the association usually maintains them and controls modifications. Knowing which side of the line a component falls on matters before you plan a renovation or file an insurance claim.
Rules That Limit What You Can Do With the Unit
Some associations include a right of first refusal in their governing documents, giving the association or neighboring owners the option to buy your unit on the same terms as any outside buyer before the sale closes. Deadlines to exercise this right typically run 15 to 20 days from notice of the proposed sale. It rarely gets exercised, but it can add weeks to a future timeline and unsettle impatient buyers when you eventually sell. Look for this provision in the CC&Rs before you buy.
Rental restrictions deserve the same attention. Many associations cap the total percentage of units that can be rented, set minimum lease terms of six to twelve months, or require new owners to occupy the unit for a set period, sometimes a year, before renting it out. If there is any chance you will need to lease the unit, whether for a job move or a market that makes selling impractical, these rules directly shape your options. A building that bans rentals or maintains a long waiting list for rental permits can leave you carrying a mortgage on a unit you cannot occupy or lease.