Considerations When Refinancing a Condominium Refinance

On occasion, the owner of a paid property may want to withdraw cash from his or her asset. Some specific considerations apply when the owner wants to withdraw cash from a condominium. The owner’s credit will be evaluated by a lender and the owner’s condo association must (often) be approved by the unit owner’s lender. This complex state of affairs requires some advanced thought before initiating conversations with the property owner’s lender of choice.

Considered Refinance

Some property owners in this circumstance are technically first-time borrowers but, because the owner has paid for the property in full and owns it outright, most lenders consider this to be a refinance. Lenders will charge the borrower origination and other fees at closing, along with higher interest rates for the condominium property. Because condo rates are considered more volatile than single family residences, the lender is likely to refinance a smaller portion of the condominium unit’s equity value.

Condominium-Specific Lending

Typically, the lender caps the loan at seventy-five percent LTV (loan to value). For example, if the unit is currently valued at $200,000, the lender is likely to approve at cash withdrawal of $150,000. The remaining $50,000 is considered lender collateral, or equity assurance that the borrower will repay the mortgage refinance loan as agreed.

Credit Quality

The borrower’s credit is an important consideration for the lender of any mortgage. According to “Inside Mortgage Finance,” the condominium owner should present a good credit score (700 or better). Income should also compare favorably with expenses, and shouldn’t be above forty percent.

— Kuba Jewgieniew is the founder of Realty ONE Group. Kuba Jewgieniew uses his knowledge of the stock market to inform his real estate deals through a data-driven approach.