Refinancing Your Condo: Rates, Costs And Everything You Need To Know
Kevin Graham6-minute read
June 09, 2022
Is your primary residence a condominium? Do you think you want to refinance your mortgage? A refinance can benefit you in a number of ways and potentially help save you thousands of dollars over the course of your loan.
Let’s go over how condo refinances work and some basic refinancing steps.
How A Condo Refinance Differs From A Traditional Refinance
Refinancing a condo isn't all that different from refinancing a traditional house. In fact, the refinancing, or “refi,” process is virtually identical for both types of home.
The big difference has to do with condo eligibility. Condo associations and builds can vary widely, so before you refinance, you'll need to make sure your home meets all the necessary requirements.
If you don't have the right type of condo, you might have stricter requirements to refinance. For example, if the condo association isn’t in great financial shape, you might need to have 10% equity in the condo in order to refinance under a more limited review process.
This helps mitigate the risk for the lender of the problems with the condo association. This is a concern because the benefits the association provides contribute to the value of your condo. It’s important to note that if you’re using a Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) loan to refinance, those agencies have to approve the condo complex. If your complex isn’t approved, this could limit your loan options.
On the other hand, if you’re refinancing with the same loan type that you bought the home with, there may be a more limited review process because they’ve approved you within that complex in the past.
Once you apply to refinance, speak with a loan expert to finalize the details of your specific situation. Refinancing a condo is definitely doable, but it’s certainly necessary to acknowledge that there might be some extra steps and information needed from the condo association due to factors beyond your control.
Find out if a refinance is right for you.
See rates, requirements and benefits.
Should You Refinance Your Condo?
Before jumping into the refi process, think about why and when you want to refinance. You might want to refinance your condo for a few different reasons, such as:
Lowering Your Monthly Payment
You give yourself more time to pay off your loan if you refinance to a longer term. This lowers the amount of money you need to pay on your mortgage each month. A refinance might be for you if you want to put more money toward your retirement account or if you’re working toward another financial goal. However, keep in mind that you’ll pay more in interest over time if you choose a longer term.
Paying Off Your Loan Faster
You can also refinance your loan to a shorter term. When you take a shorter loan term, your monthly payment increases. However, you can save thousands of dollars in interest when you pay off your loan faster. This can be a great option for you if you now earn a significantly higher salary than you did when you took out your loan.
Lowering Your Mortgage Interest Rate
If interest rates are lower now than when you got your loan, you can save money when you refinance with a lower annual percentage rate (APR). Remember to look at the APR (not just the base interest rate) when you compare current rates. You can also potentially get a lower interest rate if you have a higher credit score or less debt now than when you got your loan. You may or may not change your loan’s term when you change your interest rate. Before deciding to refinance, check out current mortgage rates and try out a refinance calculator to see how refinancing might affect your monthly payments.
Getting Rid Of Mortgage Insurance
Do you have an FHA loan? If so, you probably know that you must pay a mortgage insurance premium (MIP) throughout the duration of an FHA loan if you made a down payment of less than 10%. Many people who buy a home or condo with an FHA loan refinance into a conventional loan once they reach 20% equity in their property. As a homeowner, you can also refinance a conventional loan into another conventional loan to remove private mortgage insurance once you reach 20% equity.
Using Your Equity
Your condo isn’t just a place to live – it gives you a way to save and build equity in your property. Equity is the percentage of your home that you actually own. For example, if your loan was originally valued at $200,000 and you’ve paid off $100,000 of your principal, you have 50% equity in your home.
You can access this equity with a cash-out refinance, where you accept a higher loan principal balance and take out the difference in cash. For example, if you have $150,000 left on your loan balance and you need $10,000, you can refinance your loan balance to a $160,000 loan and get that $10,000 in cash.
Many people who take cash-out refinances use that money for debt consolidation. Mortgage loan interest rates are almost always much lower than other forms of debt. For example, the average credit card has an interest rate about 12% higher than average mortgage rates. You can save money on interest by paying down your high-interest debts.
Paying Off Other Expenses
You don’t need to use the money from a cash-out refinance to pay off debt. Unlike other types of loans like auto loans and student loans, there are almost no limitations on how you can use the money from a cash-out refinance. You can use the money from a cash-out refinance for nearly anything from funding a college education to home improvements, such as fixing a broken heating, ventilation and air-conditioning (HVAC) system.
How To Refinance Your Condo
Here’s a quick look at the steps you’ll go through when you refinance your condo.
See If You Qualify
You may have trouble refinancing your condo if various conditions apply, including the following:
- Your condo is a floating houseboat, a manufactured home or a timeshare.
- Your condo association has over 25 – 35% commercial or mixed-use space depending on the investor in the mortgage.
- You only have the right to occupy the condo (for example, you don’t own the space).
- Your condo operates as a hotel or your condo board has the right to rent out your space for short-term stays.
- Your condo is an investment security that’s registered with the U.S. Securities and Exchange Commission (SEC).
You probably won’t be able to refinance your loan if any of these descriptions apply to your condo.
Apply To Refinance
First, compare lenders in your area and consider things like customer ratings, representative availability and current interest rates.
Submit an application for a refinance after you choose a lender. The specific process you’ll go through when you apply depends on your lender, but many now offer online applications.
Your lender will usually ask you for a few financial documents when you apply for a refinance, including two of your most recent:
- Bank statements for all your accounts
- Tax returns
Your lender will usually ask you for more documentation if you’re self-employed. It’ll also ask for documentation of anyone else who will refinance your loan with you, such as your spouse.
Review Your Loan Estimate
Your lender will give you a document called a Loan Estimate when you finish your application. Just like when you bought your condo, your Loan Estimate tells you how much of a loan you can get and the new terms of your loan. It also tells you what interest rate you can get when you refinance. Finally, there will be a preliminary estimate of your closing costs.
Lock In Your Rate
Next, contact your lender to lock in your rate. Locking your interest rate protects you from changes in interest from the time you apply to the time your loan closes. Most lenders allow you to lock your interest rate for 30 – 60 days while you finalize your refinance. You may need to pay a fee if you need to lock your rate for longer than this timeframe.
Complete The Underwriting Process
From here, your lender will begin the underwriting process. During underwriting, your lender takes a look at your financial documentation and verifies your income to make sure you qualify for a refinance. Respond to any inquiries or requests for documentation that your lender submits for the fastest approval.
Schedule An Appraisal
At this stage, your lender also schedules a condo appraisal. Lenders require appraisals before you refinance to make sure that they won’t loan you more money than your condo is worth. Just like when you bought your condo, your appraiser will take a look at your property and give you a rough estimate of its value. Keep documentation handy of any repairs or renovations you’ve done on your condo. This may help with the appraisal value and give you access to more equity.
Read Your Closing Disclosure
Closing on your refinance is very similar to closing on your original mortgage. Your lender will set up a closing meeting to sign your paperwork and ask any last-minute questions. You'll also receive a document called a Closing Disclosure. This document contains information on your loan’s terms, your interest rate and your monthly payments. Read and acknowledge your Closing Disclosure and attend your closing meeting.
Close On Your Refinance
At closing, you’ll sign your paperwork and pay your closing costs (if applicable). You can find a complete list of the closing costs you have to pay on your Closing Disclosure.
Bring the following documents to the closing:
- Your Closing Disclosure
- Some form of photo identification, like a passport or driver’s license
- A cashier’s check to cover your closing costs (if they weren’t rolled into the new loan)
- A list of key contacts such as your agent or lawyer
You won’t take away cash from your closing meeting if you get a cash-out refinance on your primary property. This is because the lender must give borrowers at least 3 business days to cancel your transaction from when you sign on your loan. After this window passes, your refinance is officially complete and your lender can send your money. Most people see their cash within 3 – 5 business days after closing.
The Bottom Line: Refinancing A Condo Mortgage Can Be Simple
You can refinance most condo loans in the same way that you can refinance a home loan, and it may be a good move for you if you want to:
- Get a lower interest rate
- Change your loan term
- Remove your mortgage insurance requirement
- Take cash out
- Consolidate debt
- Cover home repairs or renovations
Once you've decided refinancing is the right move for you, you can prepare by verifying you qualify, choosing a lender and getting your finances in order. When you're ready, you can start your refinance online to review your loan options.
See What You Qualify For
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