Refinancing Your Condo: A Complete Guide

If you need cash and 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. However, you might need to take some extra steps and submit additional documentation during the application process.

Let’s examine 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 crucial 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 similar to what you experienced when buying your condo.

7 Reasons You Should Refinance Your Condo

Before jumping into the refinance process, consider why and when you want to refinance. This will inform your choice about the type of refinance you ultimately seek as a borrower.

Here are seven main reasons condo owners might want to refinance.

1. Lower Your Monthly Payment

You give yourself more time to pay off your loan if you refinance it for 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.

2. Pay 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 by paying off your loan amount faster and shorten the life of the loan. This can be an excellent option if you currently earn a significantly higher salary than you did when you took out your loan.

3. Lower 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 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 decide on your loan’s term when you change your interest rate.

4. Get Rid Of Mortgage Insurance

If you have a Federal Housing Administration (FHA) loan, you probably know 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.

5. Use 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 initially 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 need $10,000, you can refinance your loan balance to a $160,000 loan and get that $10,000 in cash.

6. Consolidate Debt

Many people who take cash-out refinances use that money for debt consolidation. Mortgage loan interest rates are almost always much lower than interest rates with other forms of debt. You can save money on interest by paying down your high-interest debts.

7. Pay 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 and student loans, there are almost no limitations on how to 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: 8 Steps To Follow

Here’s a quick look at the steps you’ll go through when you refinance your condominium.

1. Check If Your Condo Qualifies For Refinancing

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).

2. Apply To Refinance

First, compare lenders in your area and consider factors like customer ratings, representative availability and current interest rates.

Submit an application for a refinance after you choose a lender. The specific application process depends on your lender, but many now offer online applications.

Documents Required To Refinance A Condo

Your lender will usually ask you for a few financial documents when you apply for a refinance, including two of your most recent:

• Pay stubs
• W-2s
• Bank statements for all your accounts
• Tax returns

If you’re self-employed, your lender will usually ask you for more documentation. They’ll also ask for documentation of anyone else who’ll refinance your loan with you, such as your spouse.

3. 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.

4. 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 mortgage lenders allow you to lock your interest rate for 30 – 60 days while you finalize your refinance. You may have to pay a fee if you need to lock your rate for longer than this timeframe.

5. 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.

6. Schedule An Appraisal

At this stage, your lender also schedules a condo appraisal. Lenders require appraisals before you refinance to ensure they won’t loan you more money than your condo is worth. Just like when you bought your condo, your appraiser will look at your property and give you a rough estimate of its property value. Keep documentation 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.

7. 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, interest rate, monthly payments and closing costs. Read and acknowledge your Closing Disclosure and attend your closing meeting.

8. Close On Your Refinance

At closing, you’ll sign your paperwork and pay your closing costs (if applicable).

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 receive their cash within 3 – 5 business days after closing.

What Are Condominium Owner Associations?

When you buy a condo, you become a condominium owner association (COA) member. 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.

What Do Lenders Need To Know About Your COA?

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. This would also happen if you were buying a house within a homeowners association (HOA).

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

Eligibility

If your condo isn’t on the approved FHA or Department of Veterans Affairs (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.

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 the 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 determine if any major repairs to the common areas are 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 insurance coverage 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. Consider the following two loan options.

Home Equity Loans

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. For example, you might just want to access a portion of the equity you’ve built to pay for renovations or debt consolidation.

In that case, rather than agreeing to pay back your outstanding mortgage loan balance at a much higher rate, you may want to consider a home equity loan. A 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 with Rocket Mortgage^®, 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 Loans

If you have an excellent credit score and sufficient income, you may be able to qualify for a 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? Start an application online now and lock in your refinance rates.