Conventional loans for condos and second homes: the extra rules

A condo is financed on two underwriting files — yours and the building’s. A second home is financed on yours plus a set of occupancy promises. Both are routine until one detail is off.

Condo project review

Fannie Mae and Freddie Mac will not buy a loan in a condo project that fails their standards, so the lender reviews the project before approving you. Depending on the loan, it is a limited review (lower LTV, established project) or a full review requiring the association’s budget, questionnaire, insurance and legal documents. Common reasons a project fails:

Less than 10% of the annual budget going to reserves
Too many units owned by one entity, or too high a share of investor-owned units for the loan type
Significant deferred maintenance, special assessments for structural repairs, or an unfunded engineering report (rules tightened after the 2021 Surfside collapse)
Pending litigation involving the structure or the association’s solvency
Commercial space above the allowed share, or hotel-like operations (short-term rental programs, front desks)
Inadequate master insurance or fidelity coverage

Ask the listing agent whether the project is “warrantable” and whether it has recent agency approval before you write an offer. A non-warrantable condo requires a portfolio loan at a higher rate and larger down payment.

Condo costs and FHA

Budget HOA dues into your DTI — they count like a payment. FHA requires the project to be on its approved list (or qualify for single-unit approval), which is a separate, often narrower, standard.

Second homes

A conventional second home requires 10% down, must be a one-unit property suitable for year-round occupancy, occupied by you for part of the year, and not subject to a rental management agreement that controls occupancy. Lenders look for a reasonable distance from your primary home (or a vacation-area location). Since 2022 the agencies charge meaningful pricing adjustments on second homes, so rates run higher than for a primary residence. Reserves of two to six months are typical.

Second home vs investment property

If you intend to rent the property most of the year, it is an investment property — 15% to 25% down, higher rates, and rental income can help you qualify. Calling an investment property a second home to get better terms is occupancy fraud. Short-term renting a genuine second home for part of the year is generally permitted, but the lender may ask.

Frequently asked questions

Can I use gift funds for a second home?

Yes on conventional loans, but after a 5% contribution from your own funds when the down payment is below 20%.

Why was my condo loan denied when my credit is perfect?

Most likely the project failed review — low reserves, litigation, or an investor concentration issue. Ask the lender for the specific finding; sometimes the association can cure it or a different loan type has different rules.

Can I buy a second home with a VA or FHA loan?

No; both require the home to be your primary residence. A VA borrower may, in limited cases, have two VA loans when relocating, but each must have been a primary residence at purchase.