Row of condos with balconies.

Refinancing Your Condo: A Guide

Kevin Graham6-minute read

October 27, 2022

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If you need cash and you own a condo, you may be thinking of a refinance to tap into some of your home equity. The good news is that, in most respects, refinancing a condo is like any other mortgage refinance. It’ll be similar to the process you went through when you first bought your condo, although you might need to take some extra steps and submit additional documentation during the application process.

Let’s take a look at why you might want to refinance your condo, how condo refinances work and how they differ from other refinances.

How Does A Condo Refinance Differ From Home Loan Refinances?

The refinancing process is virtually identical for both condominiums and other types of homes, with one important exception: the role of the condo owners association (COA). In that respect, it’s most like refinancing a house built within a homeowners association.

A refinance involves applying for a new mortgage to replace an existing mortgage. The process will be very similar to the one you experienced when you bought your condo.

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Should You Refinance Your Condo?

Before jumping into the refinance process, think about why and when you want to refinance. You might want to refinance your condo for a few different reasons and figuring out what you want to accomplish is the first step. This will inform your choice about the type of refinance you ultimately seek.

Here are some of the main reasons why condo owners might want to refinance.

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.

Use our refinance calculator to see how much you can lower your monthly mortgage payment.

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.

Getting Rid Of Mortgage Insurance

If you have an FHA loan, you probably know that you must pay a mortgage insurance premium (MIP), even if you’ve reached a home equity level of 20%. 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.

Consolidating Debt

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.

Need extra cash for home improvement?

Use your home equity for a cash-out refinance.

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.
  • You only have the right to occupy the condo, as in a life estate.
  • 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:

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 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, unless you’ve chosen a no-closing-cost loan
  • A list of key contacts such as your agent or lawyer

After your refinance is officially complete, your lender will send your money. Most people see their cash within 3 – 5 business days after closing.

How Condo Refinances Are Different: The COA

When you buy a condo, you become a member of the COA. You are obligated to follow their rules and pay COA fees. These rules are part of the restrictive covenants included with your deed. If you don’t pay your fees, the COA can place a lien on your title.

Belonging to a condo association isn’t a problem, but your lender will need to review the condo development’s continuing eligibility and the association’s financial situation. You’d be in the same situation if you were buying a house within a homeowners association (HOA).

Here’s what lenders need to know about your condo.

Eligibility

If your condo isn’t on the approved FHA or VA list of condominium developments, you might’ve faced stricter requirements when you purchased it. If your condo development has since been approved, you may encounter fewer problems when you refinance.

The Risk

New condo developments can be risky propositions. Condos are one type of a master planned community, just like homes within a homeowners association or communities for 55+ residents. In a nutshell, investors buy hundreds or thousands of acres of land and develop a master plan to build it out.

If the first stage of the development – for our purposes, a condo development – is successful, the next stages are built. Home buyers who “bought in early” will enjoy a windfall in their condo’s appreciation. The next stage might be community amenities, like golf courses or swimming pools, or public conveniences, like grocery stores and schools.

On the other hand, if the development is unsuccessful, the investors and developers will likely walk away, taking their development funds with them. You might be stuck with a condo in the middle of hundreds or thousands of now unlikely to be developed acres, with none of the amenities you were looking for.

The FHA’s/VA’s Answer

This is exactly the risk the FHA/VA approval process is trying to help condo buyers avoid, and that’s why they require condo complex approval as a condition of home loans made through Federal Housing Administration (FHA loans) 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.

Financials

Your lender will also want to know that the COA is still in good financial shape when you’re refinancing.

Lenders are concerned about COA finances because the COA is responsible for maintenance and repair of the common areas. Many people think of pools and other amenities when they think of common areas, but if a condo is located within a high rise building, common areas include the building itself.

For this reason, lenders might ask to see a year’s worth of COA meetings to see if there are any major repairs to the common areas being discussed. This will affect both the financial stability of the building and the value of your condo.

They’ll also want to know that the COA has adequate reserve funds and insurances to handle any unforeseen problems that might arise.

Are There Alternatives To Refinancing My Condo?

If the purpose of your condo refinance is to raise cash, you may be able to avoid a refinance. Let’s consider two alternatives.

Home Equity Loan

If you bought your condo in the past few years – and enjoyed historic low mortgage interest rates – you may not want to refinance at today’s higher rates. You might really just want to access a portion of the equity you’ve built to pay for renovations or debt consolidation, for example.

In that case, rather than agreeing to pay back your entire outstanding mortgage loan balance at a much higher rate, you might want to consider a home equity loan. Just like it sounds, the home equity loan allows you to borrow just what you need from the equity you’ve built up in your home.

When you apply for a home equity loan, you’ll go through a process similar to, though sometimes more streamlined than, the condo loan refinance process. At closing, you’ll get a check, and then you’ll begin repaying that loan in addition to your monthly mortgage payment.

Personal Loan

If you have an excellent credit score and sufficient income, you may be able to qualify for an unsecured personal loan. It will likely come with a higher interest rate, but you can access the cash you need quickly, without any of the paperwork needed to secure a loan with your home.

The Bottom Line: You Can Refinance Your Condo Mortgage Loan

Owning a condo doesn’t preclude you from refinancing if you need to access your home equity. Your lender will simply need to take a look at your condo association’s finances and make sure that they don’t threaten the value of your condo.

Ready to refinance your condo? Apply online now and lock in your refinance rates.

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Kevin

Kevin Graham

Kevin Graham is a Senior Blog Writer for Rocket Companies. He specializes in economics, mortgage qualification and personal finance topics. As someone with cerebral palsy spastic quadriplegia that requires the use of a wheelchair, he also takes on articles around modifying your home for physical challenges and smart home tech. Kevin has a BA in Journalism from Oakland University. Prior to joining Rocket Mortgage, he freelanced for various newspapers in the Metro Detroit area.