A Guide to Refinancing Your Condo

Living in a condominium has many perks. You’re not solely responsible for maintenance. Your building could have amenities you may not be able to afford on your own. If you have some great neighbors, you could have a sense of community and belonging.

So, it’s no wonder if you’re thinking about refinancing to keep experiencing potential benefits.

If you’ve never refinanced a loan before or just need a refresher, read on to learn about your options and whether it could work for you.

The Difference in Refinancing a Condo

In general, refinancing a condo is the same as any other refinance. However, in addition to your eligibility, lenders will typically look at your condo association’s (COA) eligibility as well. 

Because condos offer communal spaces and shared facilities, your lender will need to ensure your COA is in good financial standing so it can keep providing these amenities.  

In addition, depending on the loan you’re getting and the type of condo you have, your condo may need to go through a full review. This includes its eligibility, finances, a questionnaire, a lender review and possibly more. To get a complete list of what a condo review entails, you’ll need to speak with your lender.

Reasons to Refinance

If you’ve been thinking about refinancing your mortgage, you likely already have a reason in mind. However, there are a handful of common reasons many condo owners may want to refinance.

Decrease Your Monthly Payment

Whether you lock in a lower interest rate or get a longer loan term, you could be able to lower your monthly mortgage bill. This could allow you to put more money towards other financial goals, such as retirement. However, if you do end up refinancing for a longer term, keep in mind that you may be paying more in interest over the life of the loan.

Take Cash Out

If you’ve been making mortgage payments for a while now, you may be able to tap into the equity you’ve built up in the form of cash at closing. Many borrowers put this cash back into their homes with remodeling or improvement projects. However, you could technically use these funds for anything you may need.

Consolidate Your Debt

Because mortgage interest rates are usually lower than other types of loans, you may want to refinance for debt consolidation purposes. This would help you save money on interest since you’d be paying down your other high-interest debt.

Remove Mortgage Insurance

If you have a loan that requires you to pay a mortgage insurance premium (MIP), you could refinance to a different type of loan to remove it. This could help lower your monthly mortgage payment.

Refinance Loan Options

There are many types of refinance options available. Here are some of the most common ones that may suit your needs.

Rate and Term

If mortgage interest rates have decreased since you obtained your original mortgage, refinancing could help you save money every month. Additionally, you could refinance for a shorter term, which would allow you to pay off this debt sooner, or a longer term, which would help decrease your monthly payments.

Keep in mind that a shorter term would mean higher monthly payments, and a longer term would mean you might pay more in mortgage interest.

Cash-Out

A cash-out refinance entails getting a new, larger loan, using it to pay off your original loan and receiving the difference in cash. Your loan amount would depend on how much equity you’ve built up in your home, but you could use this money for home projects, debt consolidation or big-ticket items.

Streamline

If you currently have a mortgage insured by the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA) or the U.S. Department of Agriculture (USDA), you could potentially get a streamline refinance. This type of refinance could help speed up the process since some paperwork and underwriting wouldn’t be necessary.

Will Refinancing Your Condo Work for You?

While refinancing your mortgage sounds like a great idea in general, there are a couple of things to consider before you set your mind on it. 

For example, if you know your condo is a temporary living solution and you know that you want to move out in the next couple of years, it may not be worth it in the long run.  

Additionally, you’ll likely want to consider the closing costs of refinancing. Even if you’re refinancing to save some money, it could take several years to break even. Make sure to speak with your lender to calculate some numbers in order to determine whether refinancing would be worth the savings.

Consider Your Options with a Pro

No matter your reason for refinancing, it doesn’t hurt to consult a reputable lender or even a financial advisor. They could help you figure out the potential benefits or alternative solutions if they’re applicable to your situation. Every borrower’s circumstances are different so even if common reasons to refinance seem attractive, it might not apply to you. 

The United States Department of Agriculture Rural Development (USDA-RD) Single Family Housing Guaranteed Loan Program assists approved lenders in providing low to moderate income households purchase or build homes in rural areas subject to eligibility requirements. The maximum loan amount an applicant may qualify for will depend on the applicant’s repayment ability. The applicant’s ability to repay a loan considers various factors such as income, debts, and assets. Regardless of repayment ability, applicants may never borrower more than the area’s loan limit (plus certain costs allowed to be financed) for the county in which the property is located. Eligible borrowers can receive 100% financing without private mortgage insurance.