Difference Between Townhouse, Condo and Duplex in Mortgage Application Process

What is the difference between a "2-unit duplex," a "townhouse," and a "condo" for purposes of underwriting a mortgage?

1 Answer

The differences are in risk to the lender or investor.  Each may be a "home" to a purchaser, but the investor's risk tolerance may exclude certain properties or charge premiums for them.

A 2-unit duplex can either be owner-occupied or not.  That is, one of the units can be occupied by the purchaser, while he/she rents the other side.  Each carry different requirements regarding previous landlord experience, down payment minimum, credit scores, reserves, etc.  Do not assume as a first time home buyer that a 2 unit duplex is within your grasp.  A one unit attached may be.

A **townhouse **generally is treated the same as a single family residence (SFR) or planned unit development (PUD), but lenders have been looking at the home owner's association (HOA) health recently.  Not a bad idea to ask your loan officer is any townhouse communities are problematic.

A **condo **is a totally different beast.  A condo purchase gets you involved in a corporation that manages the complex.  Remember, you aren't buying land in a condo purchase, just the four walls and the interior of your unit.  You are subject to what everyone else is doing in the complex.   The rules constantly change, and FHA is changing them too, but a good rule of thumb is that if more than 50% of the occupants are renters, you will have a difficult time acquiring conventional, FHA or VA financing.  This is complex specific, so ask your loan officer in advance of making an offer on a specific condo.