Condos can require big down payments

Hands framing house made of money

At least that's the case if you're thinking about buying in Las Vegas, Miami or other cities where a glut of unsold units has depressed prices.

In July 2009, for example, the median sales price for condos in Florida was $108,300, down nearly 36% from the $168,700 recorded a year earlier. But there was some good news: Condo resales rose 48% year over year, the Florida Association of Realtors reported.

"Lenders are being very conservative in their underwriting in certain markets that have been overbuilt," says John Mechem, a spokesman for the Mortgage Bankers Association. "The vacancy rates are there, and the prices just aren't holding."

Banks and mortgage companies are particularly hesitant to lend money for condos in buildings or developments that are only half-occupied or filled with renters.

When prices fell, many investors who'd hoped to flip condos for a quick profit were stuck with units worth less than what they owed on them.

Some rented them out to offset their loss; others let the units enter into foreclosure or stopped paying condo association fees.

The result? Some buildings can't collect from enough owners to pay basic maintenance costs and have fallen into disrepair, making them worth even less.

In markets where prices are falling that much, "lenders are very hesitant to make loans, especially at 20% down payment," Mechem says. "In a quickly depreciating market, that loan gets underwater very quickly."

That's why no one should be surprised when loan officers demand a big -- and we mean big -- down payment.

Potential buyers could need a down payment of up to 50%, says James Venney, a mortgage banker with Wells Fargo.

One way around that is to apply for an FHA loan that only requires a 3% down payment.

But if the building you want to buy in has many rentals or empty units, you may be out of luck. The FHA won't guarantee a loan for a condo unit in a building where the owner-occupancy rate is under 51%.

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