Condotel Financing

This guide covers condotel financing. Condotel or condo-hotel units are condominiums in a hotel or a rental condominium complex with a front desk. Condo hotel units is often referred to as condotels. A percentage of the condominium units in a hotel complex are dedicated to private ownership. Condotel owners can use their condominium units as primary homes, second homes, or investment homes. Second-home condotel unit owners can rent out the units when they are not using them. Rentals can range from daily, weekly, and monthly. The condo-hotel unit owner can rent the condotel or the owner can rely on the condotel complex homeowners association to rent the condotel unit. The HOA normally will do a revenue split for renting and maintaining the condotel unit. There are only a few mortgage lenders that specialize in condotel financing. Condotel financing are portfolio loans and have very strict lending guidelines. The team at GCA FORUMS Mortgage Group specializes in condotel financing nationwide. In this guide, we will cover condotel financing as well as the latest updated condotel financing loan programs.

Condotel Financing: Condo Unit Requirements

Condotel financing loan programs require a condotel unit have at least one bedroom and a full functional kitchen with a full size refrigerator to be eligible. The condotel mortgage lender would like to see a minimum of at least 500 square feet.  The condotel complex cannot have any litigation going on. Must not have any pending major violation issued by the county’s building department. GCA FORUMS Mortgage Group requires condotel complex to be structurally safe. The condotel complex cannot be financially distressed and have  insufficient reserves. Speak With Our Loan Officer About Condotel Loans

Credit Requirements For Condotel Financing

There are strict requirements for condo-hotel mortgage loan borrowers. Minimum credit scores requirements apply. We require borrowers to have at least a 680 FICO credit score. Those who have lower than 680 credit scores would have to wait until they can boost their credit scores to 680. There are no exceptions.

Cash Reserve Requirements on Condotel Financing

GCA fo require borrowers to have at least one year’s reserve for the subject property as well as other properties they own. For example, if the borrower has a single-family home in California and wants to purchase a condotel unit in Florida, we require the borrower have one year’s reserve of principal, interest, taxes, and insurance for both the principal residence as well as the subject condotel’s proposed purchase. Reserves are one month’s principal, interest, taxes, insurance, and HOA payments. Only 3 months of the reserves need to be in cash. The balance can be in retirement funds, and/or securities.

NON-QM Loans And Bank Statement Mortgage Loans For Self Employed

For real estate investors who are interested in short term financing and are interested in a quick private money loan and have a 20% to 35% down payment, GCA FORUMS Mortgage Group offers the following:

• Short Term Hard Money Rehab Loans
• Bank Statement Mortgage Loans For Self Employed Borrowers
• No Doc Fix And Flip Rehab Loans
• No Doc Short Term Rehab Loans
• Commercial Lines of Credit For Real Estate Investors
• All Types of Commercial Financing

Mortgage rates have gone up nine weeks in a row.

• FHA mortgage rates were 6.00% just a little over a month ago and now it is at 6.25%
• Conventional mortgage rates were at 6.5% and now are almost at 7.0%
• Condotel mortgage rates have also gone up
• 7/1 ARM condotel mortgage rates were trading at the 6.25% mark for second homes but now they are trading at 6.625% amortized over 30 years
• Mortgage rates on condotel financing is volatile in today’s market

In this article, we will discuss and cover condotel financing on Adjustable Rate Mortgages.

Condotel Financing Programs

We offer condotel mortgage loans nationwide.

• Borrowers of condotel units, please contact us at GCA FORUMS Mortgage Group.
• GCA FORUMS Mortgage Group, powered by Gustan Cho Associates specialize in condotel financing in 48 states including Washington DC, Puerto Rico, and the U.S. Virgin Islands (MA and NY pending).
• Condotel financing programs available in today’s market are mainly Adjustable Rate Mortgage products, also known as ARM products
• Condotel financing are portfolio loans.
• Portfolio loans means the lender holds and services the condotel financing program.
• Portfolio lenders normally hold the loan in-house or may sell the loan on the secondary market to institutional investors.
• 15 year and 30 year fixed rate condotel financing is available.
• The most popular condotel financing mortgage program are 3/1 ARM, 5/1 ARM, and 7/1 ARM condotel financing.
• They are all amortized over 30 years
• Minimum loan amounts start at $100,000 up to $3,000,000

There is no prepayment penalty on condotel financing.

Condotel Mortgage Rates

Mortgage rates is based on the starter rate plus the index. Rates on condotel financing depends on the index (Cost Maturity Treasury CMT) plus a 3% margin on a 3/1 ARM program.

• Condotel mortgage rates for a 5/1 ARM is set at a starter rate plus a margin of 3%.
• Condotel mortgage rates for a 7/1 ARM based on a starter rate plus a margin of 3.0%.
• The index is based on the Cost Maturity Treasury and the margin is set at 3.0%

After the initial rate period expires, the new adjustable mortgage rate cannot be lower than the starter rate.

Condotel Financing Loan Guidelines

Basic condotel mortgage loan requirements are as follows:

• The borrower needs a minimum credit score of 680 FICO
• Maximum debt to income ratio of 40% including the new condotel purchase mortgage loan
• Minimum 75% loan to value on condotel purchase loans and condotel refinance loans for primary and second homes
• 60% loan to value on investment condotel mortgage loans

One year reserves for new condotel purchase and any real estate owned.

Condotel Unit Requirements

Condo Hotel complex needs to be in good financial and structural condition. A one-page condotel questionnaire form needs to be completed by the Condotel Homeowners Association manager which consists of whether the condo-hotel complex has pending litigation and/or any major building violation issues. Condotel unit must have at least one bedroom and a functional kitchen. The condotel complex nor its subsidiaries cannot be under bankruptcy protection nor have pending litigation. Speak With Our Loan Officer About apply For Condotel Loans

How To Start The Condotel Financing Process

Borrowers of condotels can get started qualifying and getting pre-approved for condotel financing today at GCA FORUMS Mortgage Group. Condotel unit buyers and commercial real estate investors who have any questions on Condotel Financing and/or commercial loans, please contact us  at GCA FORUMS Mortgage Group at 800-900-8569. Or text us for a faster response. Or email us at gcho@gustancho.com.  The team at GCA FORUMS Mortgage Group is available seven days a week, evenings, weekends, and holidays. Real Estate Investors and homebuyers can also subscribe to our newsletter at GCA FORUMS NEWS.

Frequently Asked Questions on Condotel Financing

Here is a list of frequently asked questions on financing condotel, which answers most of the concerns and questions a borrower is likely to have while trying to source financing for a condo hotel (condotel) unit.

What is a Condotel?

A condotel is a unit within the complex of a hotel or resort that is classified as a condominium. Condotel units are used as both living quarters and a room. Sometimes, owners choose to stay in the unit for their own use or choose to rent the unit and make rental income as part of the room, referred to the hotel’s clients.

Can You Finance a Condotel Unit?

Yes, a condotel unit is purchasable via financing. Though one may experience challenges acquiring a loan from traditional lenders. For example, a conventional mortgage lender may shun the condotel due to the mixed characteristics of the property. It is, however, common practice that non-QM lenders, portfolio lenders, and some other banking institutes or credit unions would provide condotel financing.

What are the Common Types of Condotel Financing?

There are other types of loans available that are not as popular but are largely used: The most common loan options for condotel financing include:

• Non-QM (Non-Qualified mortgage) loans: These are loans whose qualification requirements are less stringent than those for other conventional mortgages.
• Portfolio loans: These are not sold to the investors after being underwritten. The lenders set their own rules to manage them as they do not have to be constrained by the expectation of selling them to an investor.
• DSCR loans (Debt-Service Coverage Ratio): In this instance, only the property’s income potential is considered, not personal income, whereas in a special case, short-term housing loans are granted.
• Bank statement loans: Loans consider the borrower’s ability to repay loans based on their bank accounts’ current status rather than tax returns or W-2 forms.

How Much of a Down Payment is Required for Condotel Financing?

It is quite common in the real estate world for condotel loans to have higher down payments than the rest. Normally, lenders may require a minimum 20 -40% down payment, depending on the borrower’s risk profile and score.

What is the Minimum Credit Score for Condotel Financing?

Almost all lenders require a minimum credit score of 680 to qualify for condotel financing. On the contrary, some non-QM lenders tend to offer reforms, such as accepting low credit scores in exchange for higher rates of interest or large deposits.

Are There any Differences in Condotel Financing?

Due to the seasons, many people will prefer to purchase or invest in residential properties, not only for condotels, which means that the cost of borrowing for condotel loans tends to be higher than that of conventional residential properties. It’s because condotel loans are much riskier. This is because these types of properties are assumed to have both personal usages and rental ones. Therefore, the source of income is seasonal. There is high volatility in such kinds of income. From 5% to 10% is the worth of interest charges where the repayment plan and the type of the borrower falls into.

Rental Income on Condotel Financing

Are there any requirements for condotel financing rental income? Certain lenders may allow borrowers to use rental income created by the unit itself in the qualification process. Historical income may be evaluated, and future rental income by location and the hotel’s history may be considered.

Can I Live in the Condotel Forever?

In most cases, condotel owners can reside in the unit permanently. Because of the hotel’s laws, a unit owner can stay in the unit or rent the unit or do the combination of both. The condotel owner can use the condotel for personal use and rent the condo hotel unit when the owner is not using it. When the condotel owner is not using it, the unit is rented out and considered part of the hotel’s inventory.

Are There any Particular Requirements a Lender Looks for Regarding Condotel Financing?

Yes, there are specific guidelines to which the condotel unit has to conform for financing.

• Square footage: This applies to certain lenders who insist that the unit is of a certain minimum size, which in most cases is 500 square feet and above.
• Full kitchen: A few lenders also insist that there be a full kitchen, including a stove and fridge, in the said unit. Hotel management: The lenders may consider the hotel’s management, occupancy, and rental pool configuration.
• Location and amenities: Lenders favor condotels in tourist-oriented areas with pools, gyms, beaches, etc.

Can I Refinance My Existing Condotel Loan?

Yes. Refinancing a condotel loan is possible. However, like condotel purchase loans, condotel refinance loans are usually available only with non-QM and portfolio lenders. In most cases, borrowers will refinance for either lower interest rates, different loan terms, or access to equity.

Can Condotel Loans be Assumable?

In most cases, condotel loans are not assumable. If you sell the unit, the buyer must take their loan and cannot assume your condotel loan.

Risks Buying a Condotel Unit

• Higher rates and limitations attracting the financing: Getting a condotel loan is usually more difficult because of the higher rates and tougher terms.
• HOA and hotel management fees: Most times, owners of condotels must meet up with payment of HOA and or hotel management and hotel maintenance fees, which tend to be very steep.
• Limited use: This would depend on your ownership ‘capping’ and how many days you may want that unit for personal use in one year.
• Market volatility: The usefulness of this information depends on one factor: the location of the condotel value. The condotel value is based on how well the tourism business fared, which can be detrimental.

Is Mortgage Insurance Essential to Get Condotel Financing?

Condotel loans require a higher down payment than most lenders, so mortgage insurance is rarely required. That is compared to other FHA or Conventional loans, which require a lower down payment.

What Documentation is Needed for Condotel Financing?

With condotel financing, it is typical to provide:

• Bank statements
• W2s, or tax returns (for certain loan products)
• Proof of rental income, if applicable
• An appraisal of the property
• Information on the Homeowner’s Association and hotel management
• Asset and reserve documentation

Can the Condotel Be used for Short-Term Renting (Air BnB)?

Some condotels permit homeowners to rent their units short-term through platforms such as Air BnB and VRBO, while some do not. Please check the condotel’s HOA and hotel management policies regarding rentals. When buying or refinancing a condotel, you should deal with a lender who understands condotel loans.

Speak With Our Loan Officer About Your Enquery