— BUYING A CONDO

Buying a Condo: What to Know
Before You Make an Offer

A Buyer’s Guide to Condo Classifications, Project Review, How to Recognize Condo Project Risks Early, and Avoid Costly Surprises in Escrow

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— ABOUT BUYING A CONDO

Buying a Condo
or Condotel 

Buying a condominium is different from buying a single-family home. With a condo, both you and the project itself have to qualify for financing – and the rules that determine which condos can be financed (and with what loan programs) are very different from anything that applies to a detached home.

Pacific Home Loans has over 20 years of experience financing condominiums across Hawaii and resort markets nationwide. This page is written for buyers – to help you understand what condo classifications mean, what affects financing, what to look at before you make an offer, and where to ask the right questions early enough to protect your transaction.

If you already know what type of condo you’re buying and want to compare loan programs:
→ Condo Loan Programs

Call today to get started!

— CONDO FUNDAMENTALS

Why Buying a Condo Is
Different from Buying a House

When you buy a single-family home, the lender underwrites you and the property – and that’s largely it. With a condo, the lender also has to evaluate the condominium project: the HOA, its reserves, its insurance, its rental policies, its commercial allocation, its litigation history, and its overall financial health.

Two condos that look identical on the surface can have completely different financing outcomes. One may qualify for conventional 3% down financing. The other may not qualify for any conventional loan at all because of how the project is structured. The buyer doesn’t always find out until well into the transaction – sometimes after option period expires or earnest money is at risk.

Understanding condo classifications early – before you make an offer – is one of the most valuable things a condo buyer can do.

— CONDO CLASSIFICATIONS

The Four Condo
Classifications to Understand

Most condos fall into one of four broad categories for financing purposes. The classification determines what loan programs are available, what down payments and rates you’ll see, and how much project review the lender has to do.

Traditional condominium projects that meet Fannie Mae and Freddie Mac guidelines. These are the easiest to finance – eligible for conventional, FHA, VA, and traditional jumbo programs, often with the lowest down payment options.

Projects that fall outside agency guidelines for one or more reasons – investor ownership concentration, HOA structure or reserve issues, commercial allocation above agency thresholds, ongoing litigation, insurance coverage gaps, or short-term rental activity. Non-warrantable does not mean unfinanceable – it means the project requires specialized financing that operates outside conventional underwriting.

Condominium projects located in vacation and resort markets that may involve short-term rental activity, resort zoning, or unique ownership structures. Many resort condos are also non-warrantable. These properties typically require specialized resort-focused financing.

Hospitality-oriented condominium projects that operate more like hotels than residential buildings. Common characteristics include front-desk operations, mandatory or centralized rental programs, hotel branding, rental pooling, and occupancy restrictions on the owner. Condotels require condotel-classified financing, which typically carries higher down payments and rates than other condo loan types.

Hawaii note: Hawaii buyers may also encounter a fifth designation – CPR (Condominium Property Regime). CPR properties are usually underwritten as site condos rather than full condominiums, which changes the financing approach significantly. See the Hawaii-specific section below.

— THE BIGGEST MISCONCEPTION

Most Vacation Rental
Condos Are Not Condotels

This is the most common – and most expensive – misconception condo buyers run into. Many buyers (and many lenders) assume that any condo allowing nightly rentals is a condotel. It isn’t.

Most vacation rental condominiums are actually classified as non-warrantable resort condominiums rather than true condotels. That distinction matters because eligible non-warrantable resort condominium projects may qualify for lower down payment requirements and financing options that are often more favorable than traditional condotel loan structures.

If you’re shopping for a vacation rental condo and a lender is quoting you condotel terms, it’s worth getting a second opinion on the project classification before locking your loan.

For vacation rental and non-warrantable resort condo financing:
→ PrimeResort™ Vacation Rental Condo & Resort Financing

— PROJECT REVIEW

What Lenders Look at in
Condo Project Review

Condo financing requires review of the entire project – not just the individual unit. Different loan programs require different depths of review, but the common considerations include:

  • Reserve adequacy – does the HOA have enough set aside for future repairs?
  • Current operating budget and recent financial statements
  • Delinquency rates on HOA dues
  • History or pending risk of special assessment

  • Master policy structure and coverage limits
  • Hazard, liability, and (where applicable) flood, hurricane, or earthquake coverage
  • HO-6 (unit owner) policy requirements

  • Owner-occupancy ratio vs. investor / rental ownership
  • Commercial allocation (percentage of the project used for non-residential purposes)
  • Single-entity ownership concentration (how much of the project one party owns

  • Short-term rental restrictions or allowances
  • Mandatory rental pooling or centralized hotel management
  • Minimum lease terms
  • Blackout dates or owner occupancy limits

  • Pending or threatened litigation
  • CC&Rs, bylaws, and governance documents
  • Project legal structure (condominium, co-op, leasehold)

Each of these factors can move a project between classifications – and therefore between loan programs, rates, and down payment requirements.

— BEFORE YOU MAKE AN OFFER

Questions to Ask Before
You Submit a Condo Offer

The condo’s financing eligibility is rarely visible from the MLS listing. These are the questions to ask the listing agent, HOA, or property manager early – ideally before you submit an offer, and definitely before earnest money is at risk:

  • Is the project warrantable? Is it currently on the Fannie Mae approved condo list?
  • What percentage of units are investor- or rental-owned vs. owner-occupied?
  • Does any single entity (the developer, sponsor, or investor) own more than 10% of the units?
  • What is the commercial allocation? (Restaurants, retail, hotel space, parking garage as a separate business)
  • Is short-term rental (less than 30 days) permitted? Is there a rental program or rental pool?
  • What are the HOA reserves and recent reserve study findings?
  • Are there any pending special assessments or recent major capital projects?
  • Is the project involved in any current or threatened litigation?
  • What does the master insurance policy cover, and does it meet current lender requirements?
  • In Hawaii: is the property leasehold or fee simple? If leasehold, what is the remaining lease term and rent renegotiation schedule?

If the listing agent doesn’t know the answers, that’s not a deal-killer – but recommended that you speak with a Pacific Home Loans representative as early as possible in the process so our team can assist with identifying and reviewing the documentation needed to evaluate financing options.

— HAWAII CONDOS

Special Considerations
for Hawaii Condo Buyers

Hawaii has condo-specific characteristics that can catch mainland buyers off guard:

Hawaii’s CPR designation is a unique legal structure that allows multiple owners to hold separate units on a single parcel of land – common for ʻohana units, multi-home estates, and certain small-scale projects. CPR properties are typically underwritten as site condos rather than full condominiums, which has meaningful financing implications:

  • No full condo project review required, since there is no traditional HOA or condominium project to evaluate
  • Not subject to Fannie Mae’s condo loan-level pricing adjustments (LLPAs), which often means lower interest rates than traditional condo financing
  • Streamlined underwriting compared with warrantable or non-warrantable condo loans

CPR financing requires experience to do correctly. Many mainland-focused lenders default to standard condo underwriting on CPR properties, which can result in unnecessary project review, condo LLPA pricing, or even outright loan denial. Working with a lender experienced in Hawaii CPR structures is highly recommended.

Many Hawaii condos – particularly in Waikīkī, parts of Maui, and certain Big Island resort projects – are leasehold rather than fee simple. The owner owns the unit but not the land underneath it, and pays a ground lease to a separate landowner. Leasehold properties have different financing rules, may have lease expirations to plan for, and can have scheduled rent renegotiations that significantly affect carrying costs. Always confirm whether a Hawaii condo is leasehold or fee simple before making an offer.

Hawaii condo master insurance policies sometimes have hurricane deductible structures or coverage gaps that affect financing eligibility. Lenders verify these before closing.

Short-term rental rules vary significantly by island and even by neighborhood. Some projects in resort-zoned areas allow legal short-term rentals; some explicitly do not, regardless of what the HOA permits. County zoning, not just HOA bylaws, determines what’s legal.

Hawaii is where PrimeResort™ was originally developed and refined. If you’re buying in Wailea, Kīhei, Kāʻanapali, Kapalua, Waikoloa, Princeville, Waikīkī, or Ko Olina, ask your lender whether PrimeResort™ financing could lower your down payment and rate compared with standard condotel financing.

Each of these factors can move a project between classifications – and therefore between loan programs, rates, and down payment requirements.

— FINANCING PATHWAYS

Where to Go for Specific
Condo Loan Programs

Once you understand how a condo project is classified, the financing pathway becomes clearer. Pacific Home Loans structures condo financing across the full range:

For traditional residential condo financing (conventional, FHA, VA, jumbo):
→ Condo Loan Programs

For non-warrantable resort and vacation rental condos:
→ PrimeResort™

For condotels and luxury condominium financing:
→ Portfolio Loans, Condotel Financing & Strategic Luxury Property Solutions

For self-employed, investor, or alternative-documentation borrowers:
→ Non-QM Loan Options

For investors qualifying on the property’s rental cash flow:
→ DSCR / Investor Cash Flow Loan Programs

— PHL CAPITAL PLATFORM

How Condo Financing Fits
Into the PHL Lending Platform

Pacific Home Loans structures condominium financing using a tiered capital platform – so that whatever the condo’s classification, there’s a financing pathway designed for it:

Agency Financing
Conventional, FHA, VA, and traditional jumbo programs for borrowers and properties meeting standard guidelines
↓
PrimeResort™
Non-warrantable condo and vacation rental condo financing for resort-style condominium projects
↓
Non-QM Financing
Flexible qualification using DSCR, bank statements, asset-based qualification, 1099 income, foreign national documentation, and short-term private money / bridge financing
↓
Portfolio Lending
Condotels, luxury property financing, jumbo and super jumbo lending, and advanced strategic structuring

Related Financing Solutions

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— COMMON QUESTIONS

Buying a Condo
FAQ

Have a question not answered here? Our team is available to walk through your specific scenario.

Warrantable condominiums meet standard Fannie Mae and Freddie Mac project guidelines and qualify for conventional financing. Non-warrantable condominiums fall outside those guidelines because of investor concentration, short-term rental activity, HOA structure, litigation, commercial allocation, or insurance considerations. Non-warrantable condos can still be financed – they just require specialized loan programs like PrimeResort™, Portfolio, or certain Non-QM options.

A CPR (Condominium Property Regime) is a Hawaii-specific legal structure that allows multiple owners to hold separate units on a single parcel of land – common for ʻohana units, multi-home estates, and small-scale projects. CPR properties are typically underwritten as site condos rather than full condominiums. That means no full condo project review is required, and the loan is not subject to Fannie Mae’s condo loan-level pricing adjustments – which often results in lower interest rates than traditional condo financing. CPR financing requires lender experience to execute correctly, since many mainland-focused lenders default to standard condo underwriting and miss the streamlined site-condo pathway.

A resort condominium maintains traditional condominium ownership while allowing vacation rental activity. A condotel generally operates more like a hotel and may include front-desk operations, centralized rental management, hotel branding, rental pooling, or occupancy restrictions on the owner. Condotels require specialized condotel-classified financing.

No. Many vacation rental condominiums are actually classified as non-warrantable resort condominiums rather than true condotels. The distinction can significantly affect down payment requirements, interest rates, and available loan structures. If a lender is quoting you condotel terms for a vacation rental condo, it’s worth a second look at the classification.

Some condo projects fall outside standard agency financing guidelines because of investor ownership concentration, short-term rental activity, HOA structure, commercial allocation, litigation exposure, resort zoning, or hotel operational influence. These projects may require non-warrantable financing, Non-QM financing, or Portfolio Lending solutions.

Condo classification can directly affect available loan programs, down payment requirements, reserve requirements, project review standards, occupancy restrictions, and qualification methods. Two condo projects that look similar can qualify for very different financing structures, with meaningful differences in cost and terms.

In many cases, yes. Pacific Home Loans can often review project characteristics, HOA structure, short-term rental activity, investor concentration, and available project documentation to help determine whether a condominium may be classified as warrantable, non-warrantable, resort-designated, or a condotel – before financing begins. Initiating this review early is one of the most valuable risk-management steps a condo buyer can take.

Common project review considerations include HOA reserves, insurance coverage, owner-occupancy ratios, commercial allocation, litigation exposure, short-term rental restrictions, and overall project classification. Project review requirements vary depending on financing structure, occupancy, condo type, and investor guidelines.

Down payment minimums depend on the condo’s classification, your occupancy, and the loan program. For warrantable condos with owner-occupancy, conventional financing can go as low as 3% down (or 3.5% FHA, zero VA for eligible veterans). For non-warrantable resort condos, PrimeResort™ may start at 20% down for second homes or investment properties. Condotel financing typically starts at approximately 25% down.

Have Questions About a Specific Condo Project?

Our team can review the project, help determine the classification, and walk you through your financing options – whether the property is in Hawaii or any other market where Pacific Home Loans is licensed. The earlier in the process you ask, the more options you’ll have.

Call 1-866-389-2778