🏢 The Hidden Hurdles: Why Financing a Condo Can Be Trickier Than You Think

If you've fallen in love with that perfect condo in The Gulch 🌆 or found an amazing unit in one of Nashville's historic buildings, you might be surprised to discover that getting a mortgage isn't as straightforward as financing a single-family home. While condos offer fantastic urban living opportunities ✨, they come with unique financing challenges that can catch buyers off guard—and some of these challenges have actually gotten more complex in recent years.

Over the past few years, we've worked with several clients who "just wanted to buy a little condo in town" but didn't realize the complications they would run into along the way. Unlike single-family homes where lenders primarily evaluate your creditworthiness, condo financing requires the lender to scrutinize both you and the entire building's financial health.

💰 The Warrantable vs. Non-Warrantable Divide

One of the biggest factors affecting your financing options is whether the condo is "warrantable" or "non-warrantable." This distinction can make or break your ability to secure conventional financing.

Warrantable condos ✅ meet the strict standards set by Fannie Mae and Freddie Mac, making them eligible for conventional loans with competitive rates and lower down payments. Non-warrantable condos ❌ don't meet these standards, severely limiting your financing options and typically requiring larger down payments of 20-30% with higher interest rates.

Common reasons a condo becomes non-warrantable include:

• Less than 50% of units are owner-occupied (too many rentals or short-term rentals)
• One person or entity owns more than 10-20% of the units
• The building has pending litigation
• Construction isn't complete or the developer still controls the HOA
• The project has too much commercial space

In Nashville's hot market, many urban buildings have tipped toward higher investor ownership due to rental investments, making them non-warrantable and creating financing headaches for traditional buyers.

🏦 The Condo Association Financial Health Check

Even for warrantable condos, lenders don't just evaluate you—they also scrutinize the entire condo association's financial health 📊. Your dream unit could have perfect bones and an ideal location, but if the HOA has financial troubles, your loan application might hit a wall 🚫.

Lenders typically require that no more than 15% of units be behind on HOA dues, and the association must maintain adequate reserve funds for major repairs and maintenance. If the building needs a new roof or HVAC system but lacks the funds, lenders view this as a red flag that could lead to special assessments down the road.

🏛️ FHA Loans: The Good News and the Catch

There's been a positive development in FHA financing that many buyers don't know about 🎉. In 2019, FHA brought back "spot approval" (officially called Single-Unit Approval), which allows individual condo units to be approved for FHA financing even if the entire development isn't on the HUD-approved list.

However, there's a catch: in developments with 10 or more units, no more than 10% of the total units can have active FHA-insured loans. In smaller developments with fewer than 10 units, FHA financing may be available for up to two units total. The approval process typically takes up to 30 business days if all required documents are submitted promptly.

For buildings that are fully FHA-approved, the approval lasts for three years before requiring re-certification. Many associations choose not to pursue or maintain this approval due to the paperwork and ongoing compliance requirements involved.

🏖️ The Second Home Buyer Complication

If you're buying a condo as a second home, you'll face additional scrutiny 🔍. Lenders have become much stricter about distinguishing between true "second homes" and investment properties, especially in markets like Nashville where short-term rental activity is high 📈.

For a condo project to remain warrantable, typically more than 50% of the units need to be owner-occupied or legitimate second homes. If too many units are being used as investment properties or short-term rentals, the entire building can lose its warrantable status, affecting all future buyers.

⚖️ Pending Litigation and Special Assessments

Condo associations sometimes face lawsuits—whether from construction defects, disputes with developers, or other issues ⚠️. Even minor legal matters can cause lenders to pause or deny loan applications. The uncertainty around potential financial liability makes lenders nervous, and resolving these concerns can significantly delay your closing timeline.

Additionally, lenders carefully review condo association budgets and meeting minutes looking for signs of upcoming special assessments. If the association is planning major capital improvements or has deferred maintenance issues, lenders worry about buyers facing unexpected large expenses that could impact their ability to make mortgage payments.

📋 The Information Gathering Challenge

To make things even more complicated, there's no centralized place to find answers about a building's financing eligibility 🤷‍♀️. Typically, a buyer has to get the HOA president or property manager to fill out a detailed questionnaire. Many HOAs charge substantial fees—sometimes $600 or more—before they'll even provide the information needed to determine if financing is possible 💸.

This sometimes creates a frustrating catch-22: you need to pay to find out if you can even get a loan for the property you want to buy.

💳 Financing Options for Non-Warrantable Condos

If you've fallen in love with a non-warrantable condo, don't despair—financing options exist, but they're more limited and expensive 💰. You'll typically need to:

• Make a larger down payment (25-35%) 💵
• Accept higher interest rates 📈
• Work with specialty lenders who keep these loans in their portfolio
• Have excellent credit and strong financial reserves ⭐

There are essentially no financing options for buyers putting down less than 10%, and very few for those putting down less than 20%.

🎯 Tips for Navigating Condo Financing in 2025

Check warrantable status early ✅. Before you fall in love with a specific unit, verify whether the building is warrantable. Ask your real estate agent to help determine this, or check the HUD-approved condo list online.

Get pre-approved with an experienced lender 🏆. Work with a lender who regularly handles condo financing and understands the complexities involved. They can guide you through potential pitfalls and help identify buildings that will work for your financing situation.

Request HOA documents upfront 📄. Ask the seller to provide essential HOA documents as part of your offer: bylaws, rules and regulations, reserve study, recent meeting minutes, and current balance sheets. Make your offer contingent upon reviewing these documents during your inspection period. 

Budget for additional costs 💰. Many HOAs require transfer fees and initial contributions to reserve funds at closing. Build a cushion for these potential expenses since your lender may not know the specific requirements initially.

Consider the building's long-term viability 🔮. Look at the bylaws to see if they govern investor percentages. You may buy a condo that qualifies for financing today but might not when you go to sell it later if the building's investor ratio changes.

Get the right insurance 🛡️. Homeowners' insurance is often included as path of your monthly HOA payment for the majority of Nashville condos and townhomes, but there are exceptions. Additionally, some lenders now require HO6 insurance (similar to renter's insurance), which covers your personal property and provides additional liability coverage.

Understand what's covered 🏠. Know exactly what your monthly HOA dues cover. Most associations maintain exterior spaces, roofs and siding, but many don't cover HVAC systems, doors, windows, or plumbing.  

🏁 The Bottom Line

While condo financing presents unique challenges that have actually increased in complexity over recent years, don't let these hurdles discourage you from pursuing urban living 🌃. Condos can be perfect for first-time buyers, young professionals, Vandy and Belmont students, investors, frequent travelers, empty-nesters, or anyone who prefers a more urban lifestyle with lower maintenance responsibilities.

The key is understanding these potential obstacles upfront so you can address them proactively rather than being caught off guard during the buying process 🔑. With proper preparation, the right team of professionals, and realistic expectations about financing options, you can successfully navigate the process and secure financing for your perfect Nashville condo ✨.

Remember: the days of easy mortgage approvals are long gone, and every underwriter now wants detailed answers about both you and the building 📝. Being prepared and working with experienced professionals who understand condo financing will make all the difference in your home-buying journey 🏡.

Note: Nashville condos comprise approximately 15% of the purchasable real estate in Nashville, yet account for around 30% of our sales. If you are seeking an agent fluent in the intricacies of Nashville condominiums, you've found the right team!