Condo Mortgage: How It Differs From a Townhouse Loan

A condo mortgage is an ordinary home loan on a condominium unit, with one added step: the lender must also confirm that the building, called the condo project, meets the loan program’s standards. A townhouse loan, however, usually works like a loan on a detached house, because a townhouse owner usually holds title to the lot. So the property’s legal form decides which rules apply.

How a condo mortgage differs from a house or townhouse loan

Lenders review your credit, income and down payment the same way for a condo or a townhouse. The difference is a second review: with a condo, the lender also checks the homeowners association (HOA) and the project, because the building’s finances and condition affect every unit’s value.

Fannie Mae treats this project risk as separate from the borrower’s credit risk (Selling Guide B4-2.1-01). As a result, a condo mortgage can stall even when the buyer qualifies easily. In short:

• Condo: you qualify, and the project must also pass a review or carry an approval for your loan type.
• Townhouse in a planned unit development (PUD): you qualify, and Fannie Mae waives the project review, apart from some basic requirements (B4-2.1-01).

Condo vs. townhouse: what you own and why the lender cares

A condo owner holds title to the unit plus an undivided share of the common areas, such as the roof and hallways. Because the HOA manages those parts, your unit’s value depends on how well it runs.

By contrast, a townhouse owner usually owns the lot and the structure outright (fee simple ownership). Many townhouse communities still have an HOA, although it owns only the shared property. Fannie Mae calls that setup a PUD (B4-2.1-01, “Project Types”).

“Townhouse” describes a building style, while the deed and the HOA documents show the legal form. Fannie Mae treats any development declared as a horizontal property regime under local law as a condo project, unless local law allows the regime to be created as a PUD and the project documents say it is a PUD (B4-2.1-01). Therefore, a row of attached townhomes can legally be a condo.

How condo project approval works

For conventional loans, the lender usually runs the review, while FHA and VA keep their own approved lists.

Fannie Mae and Freddie Mac review methods

For a conventional loan sold to Fannie Mae, the review method depends on the project (B4-2.1-01, “Project Review Methods”):

• Full Review: the lender enters the HOA’s data in Fannie Mae’s Condo Project Manager (CPM) tool, which returns an eligibility result (B4-2.2-01).
• PERS: Fannie Mae’s own Project Eligibility Review Service reviews the project, which some new or converted projects must use (B4-2.2-04).
• FHA approval: a unit in an established project that HUD itself approved (through its HRAP review) can rely on that approval.
• Waived review: detached condo units and units in 2- to 10-unit projects skip the full review, although basic requirements still apply (B4-2.1-02). For 5- to 10-unit projects, the waiver applies only outside a larger development or master association.

Freddie Mac uses a similar structure (Guide section 5701.2, effective for applications from August 3, 2026). The lender can review the project itself, rely on a Fannie Mae approval or, in some cases, an FHA approval (a reciprocal review), or treat the unit as exempt. Exempt units include those in 2- to 4-unit projects, 5- to 10-unit projects outside a master association, and detached condo units.

New vs. established projects

Fannie Mae calls a project established when at least 90% of the units have sold, construction is complete, no more phases are planned, and the owners control the HOA. Otherwise, it is generally a new project (B4-2.1-01). New projects face extra requirements, and a lender’s review of one stays valid for less time: 180 days before the note date (the day you sign the loan) versus one year for an established project, under both Fannie Mae and Freddie Mac rules.

What a condo project review checks

Of the many Full Review items, these five are the ones a buyer can most easily ask about:

1. Late HOA dues. No more than 15% of units can be 60 or more days behind on HOA dues (B4-2.2-01).
2. Reserves. The HOA budget must put at least 10% toward replacement reserves, the savings for roofs, elevators and other big items (B4-2.2-01).
3. Commercial space. Nonresidential or commercial space cannot exceed 35% of the project (B4-2.1-03).
4. Ownership concentration. In a project with 21 or more units, one person or company cannot own more than 20% of the units (B4-2.1-03).
5. Lawsuits and repairs. Pending litigation about safety, structure or habitability can make a project ineligible, and so can a need for critical repairs (B4-2.1-03).

Projects run like a hotel are ineligible too. Signs include a hotel or resort name, registration services or short-term rentals (B4-2.1-03).

Condo mortgage rules for FHA, VA, Fannie Mae and Freddie Mac

Down payment on a conventional condo mortgage

A conventional loan can reach 97% LTV on a one-unit fixed-rate purchase in some cases, according to Fannie Mae’s Eligibility Matrix. However, the matrix notes that lower LTV limits may apply to condos, depending on the type of project review.

FHA and VA condo approval

An FHA loan needs at least 3.5% down (HUD Handbook 4000.1, II.A.2.c.ii), and a borrower with a credit score of 500 to 579 is limited to 90% LTV (II.A.2.b.i). The project must be on HUD’s approved list, or else the unit needs Single-Unit Approval. That route requires a project of at least five units that is not on the list, with certificates of occupancy issued. It also requires an automated Accept, or a maximum 90% LTV if manually underwritten. In addition, FHA limits its share of the project: 10% of units in projects of 20 or more, or two loans in smaller ones (II.A.8.p.iii).

FHA approval also looks at how many units are owner-occupied. For the list and lookup steps, see our guide to FHA approved condos. For borrower rules, see the FHA loan requirements.

VA must approve a condo project before it will guarantee a loan there, and it keeps a nationwide list of approved condominiums (VA Pamphlet 26-7, chapter 16). So check that list early if you plan to use a VA home loan.

Warrantable and non-warrantable condos

Lenders call a condo project “warrantable” when it meets Fannie Mae and Freddie Mac standards, so a loan there can be sold to either company. “Non-warrantable” means it does not. Neither company’s Guide uses these words; they are trade shorthand.

A project becomes non-warrantable for a reason such as one covered above: hotel-style operation, too much commercial space, pending litigation or late dues.

In that case, only lenders that keep the loan on their own books (portfolio lenders) or sell it outside Fannie Mae and Freddie Mac can make a conventional loan on the unit. An FHA or VA loan depends on that program’s own approval. Fewer lenders offer these loans, and down payment, rate and credit terms vary by lender, so ask early whether a lender does them at all.

What a condo mortgage costs

The Fannie Mae condo price adjustment

Fannie Mae charges lenders loan-level price adjustments (LLPAs), one-time fees set as a percentage of the loan, for certain features. Lenders often pass them on to borrowers as a higher rate or higher closing costs. For a purchase, the “Condo” adjustment in the Fannie Mae LLPA Matrix (read November 12, 2026) is:

• 0% at 60% LTV or less
• 0.125% of the loan amount at 60.01% to 75% LTV
• 0.750% above 75% LTV, meaning less than 25% down

It does not apply to detached condo units or co-ops, and the matrix has no PUD row. That is why condo mortgage rates can run higher: on a Fannie Mae loan with less than 40% down, the condo label adds a cost that the same loan on a PUD townhouse would not carry, and the cost is larger with less than 25% down.

Say a buyer purchases a $200,000 attached condo with a conventional loan sold to Fannie Mae. The table shows the condo adjustment only, because other LLPAs, such as those based on credit score, apply to any loan. It also excludes taxes, insurance and mortgage insurance.

In this example, the extra $10,000 down cuts the condo charge by $1,012.50. A $200,000 PUD townhouse would carry neither charge. Second homes and rentals carry larger adjustments in the same matrix; see how to finance a vacation home and investment property loans.

HOA dues and the appraisal

Lenders include HOA dues and special assessments in your monthly housing expense (Fannie Mae Selling Guide B3-6-03), which goes into your debt-to-income ratio (B3-6-02). Consequently, higher dues leave less room for the mortgage payment.

Lenders also often require an appraisal on a condo. However, Fannie Mae’s Desktop Underwriter may offer value acceptance, which waives the appraisal, for one-unit properties, including condos (B4-1.4-10).

Townhouse loans: usually the same as a house

A fee simple townhouse in a PUD is financed much like a detached house. Fannie Mae waives the project review for PUD units, apart from basic requirements (B4-2.1-01), and the condo price adjustment does not apply. Likewise, VA approval applies to condos but not to PUDs (VA Pamphlet 26-7, chapter 16).

A townhouse is legally a condo when its HOA documents declare a condominium or horizontal property regime. In that case, condo rules apply: project review (unless the project is small enough for a waiver) and, for attached units, the price adjustment. Ask your agent or title company to confirm the legal form before you apply.

Before you make an offer on a condo

1. Confirm the legal form. Ask your agent or the title company whether the home is a condo or a PUD.
2. Get the HOA budget and project questionnaire. Lenders often use Fannie Mae’s Condominium Project Questionnaire (Form 1076) or a similar form.
3. Ask the lender whether the building is eligible for your loan type. A project can pass a conventional review and still lack FHA or VA approval.
4. Check the FHA or VA list if you plan to use one of those loans.
5. Ask about special assessments and lawsuits. An assessment raises your costs, while some lawsuits make the project ineligible.

Condo mortgage FAQ

Is a condo mortgage harder to get than a house loan?

Your own credit and income review works the same way. The extra hurdle is the project review, so if the building fails, you may need a different loan type or a portfolio lender.

Are condo mortgage rates higher?

They can be. On a Fannie Mae loan, the condo price adjustment is 0.125% of the loan amount at 60.01% to 75% LTV and 0.750% above 75%. Lenders often pass it on as a higher rate or fees, although it drops to zero at 60% LTV or less.

What is a non-warrantable condo?

It is a condo project that does not meet Fannie Mae and Freddie Mac standards, so loans there generally cannot be sold to either company. Causes include hotel-style operation and pending litigation. Fewer lenders finance these units, and terms vary.

Can I use an FHA loan on any condo?

Usually not. The project must be on HUD’s list of FHA-approved condos, or else the unit must qualify for Single-Unit Approval. That route needs a project of at least five units, and FHA also limits how many units there it insures. Streamline refinances and detached site condominiums follow different rules.

Are townhouse loans different from condo loans?

Usually, yes. A fee simple townhouse in a PUD is financed like a house, with no condo project review or price adjustment. However, a townhouse built under a condo declaration follows condo rules.

Check the building before you commit

With a condo mortgage, the building has to qualify along with you. So before you make an offer, ask a lender to confirm the project is eligible for your loan type.