Going to Buy a Condo? Here's What You Need to Know

Even though condominium prices are reaching record lows in many parts of the country, getting bank financing to buy a condo can sometimes be problematic.

See also: Can you get a loan with bad credit?

Even if you have a sufficient down payment and good credit, you still may run into problems qualifying for a mortgage on a condo.

What could go wrong with a condo deal? Several things. For example, a lender could reject certain condo developments or there could be a sizable increase in homeowner's association fees. Sometimes you don't find out about any of these potential snags until the last minute, or even after you've agreed to buy the property.

Buying a condo during tough economic times has both pros and cons. Whether you're considering a condo as a retirement home or a vacation property, make sure you have answers to the following questions before proceeding with your loan application.

Does the bank consider the area a "declining market"?

If the answer is yes, it may be much harder to get a mortgage loan for a condominium. Banks may not extend attractive loans — or may not do much business at all — in areas where they think the value of condos and other homes are expected to drop dramatically.

For instance, even though home prices in southern Nevada are now less than half of where they were during the market peak in 2006, that region continues to experience falling home values. In February 2011, the median price of a condo sold in the area was $62,250, down 4.2 percent from the year before, according to the Greater Las Vegas Association of Realtors (GLVAR).

Perhaps that explains why 54 percent of homes bought in the region in February were bought with cash, the GLVAR reports.

So if you plan to buy a condo in a declining market, be prepared to close on the deal as an all-cash buyer. At the very least, expect to have a very large down payment — well above the standard 20 percent.

Next: How FHA loans work with condos. >>