Condo-Hotel Financing is Available Again

Summary of Condo-Hotel Financing Options

After the real estate meltdown, we had been experiencing a lot of difficulty with financing for our ski town condo properties. We were often unable to find financing for our clients looking to purchase condo-hotel properties. The problem with that was that so many condominium developments here in Park City and Deer Valley fell into the condo-hotel classification. This has been a problem found in many resort markets. Additionally, when clients insisted on using a lender outside of our Park City resort market, they were ill-equipped to handle the condo-hotel difficulties, and often totally unaware of the pitfalls associated with them. It was common to get all the way to the end of underwriting to finally be told the loan was not going to happen. Simply put, it was often such a mess.

What is a Condo-Hotel? Great Question.

A condo-hotel is a condo building that quite simply looks and feels like a hotel. Basically, if the condo property has a front desk for check-ins, it is operating like a hotel, and therefore falls under the condo-hotel category - in regards to lending. Other factors such as pools, spas, fitness centers, concierge, shuttle services, etc., may also cause the property to be treated as a condo-hotel, at least in the eyes of the mortgage underwriter. If the units in the building are heavily owned as vacation rental condos, then again, it is probably going to fall under condo-hotel guidelines. So that basically describes many of our condo properties here in Park City and Deer Valley, and for a while there was no option for financing on these types of properties.

Now, we have moved past the bottom of the real estate market, and lending is starting to loosen up slightly, and open up to more programs again. With the healing of the real estate market, and the mortgage industry we finally are starting to see some good, solid programs for condo-hotel financing, which is crucial to a ski resort community.

Condo-Hotel Financing Programs:

The condo-hotel programs do differ from traditional lending programs. For instance, a traditional home loan can be found in 15-year, and 30-year conventional mortgages. For condo-hotels we are limited with only 3/1, 5/1 and 7/1 ARM's. ARM stands for "Adjustable Rate Mortgage". An adjustable rate mortgage will adjust with the current mortgage rates. The amount that the loan can increase, or decrease, and how often is best answered by the lender providing the loan as these factors can differ from one plan to another. The important aspect is when you purchase a property with a 3, 5 or 7 year ARM, you must realize that you will need to payoff the loan at the end of the 3, 5 or 7 years. At that point you can payoff the loan, or you will need to find a new loan to payoff the loan you had. The caution here is that you must have the confidence that in 3, 5 or 7 years down the road, you hope that condo-hotel financing is still available, so you can get a new loan, to payoff the current loan. When the mortgage melt-down occurred a few years back, these programs went away, and many people were foreclosed on due to the fact they could not get a new loan to pay-off their current ending loan. Just something to be aware of and cautious of.

Condo-Hotel loans will require more money down as well. If the property will be a primary home, or a second home the minimum down payment will be 30%, with a 70% loan amount. To qualify as a second home you must intend to occupy the property at least 2 weeks of the year. Even as a second home, you can still rent the property out as often as you like, so long as you use it for an amount equal to 2 weeks. For investment condo purchases, you will need to put 50% down as the minumum.

There are other specific factors of the condo-hotel programs. For example, they will not lend on studio units, and often there may be a square footage minimum requirement of maybe about 500 SF. The lender will require the buyer to have 12-24 months worth of reserves in their bank account. The lender may also require to escrow other upcoming HOA dues and fees in advance.

The interest rates for condo-hotel financing is usually a little more than conventional financing loans, typically a full point more. For example, a 30-year conventional mortgage might be at about 4.25% in today's market, and a condo-hotel may be at about 5.5%.

For specific information and details of the condo-hotel programs and options we highly recommend talking to one of our local, preferred lenders. We don't require using our lenders, but we sure do suggest them. To often, out-of-state lenders don't know what we are up against here in a ski resort town. Underwriters for the loans look at these properties in such a different way, but the out-of-state loan originators ignore that, hoping it will all go through fine, and it never does. Our local lenders are fully ready and capable of lending on these properties, and will align you with the correct program right from the start.

As a buyer purchasing one of these condo-hotel properties, what you need to understand is you may be approved for the loan, but the property needs to be approved as well. Our local lenders often have these developments pre-approved, or know the process and questions to ask to get the property approved up front, avoiding timely delays and costly failures of financing approvals.

If you have further questions on these programs, please let us know and we'll direct you to the most qualified lender.