Condotel and Condominium Financing: Understanding the Basics

May 23, 2024
Condotel and Condominium Financing: Understanding the Basics

Condotels and condominiums may sound similar, but they have distinct differences, especially when it comes to financing. Understanding these differences is crucial for helping clients look through their options effectively. This article will explore the fundamentals of condotels and condominiums, focusing on their definitions, ownership structures, and financing considerations, with a particular emphasis on condotel loans.

This article was originally published on Aug 3, 2023.

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What is a Condominium?

A condominium, often called a condo, is a type of property ownership where individuals own separate units within a larger building or complex. Owners also share ownership of common areas such as hallways, lobbies, and amenities. Condos range from residential units in high-rise buildings to townhouses and even detached homes within planned communities.

Condominium Ownership Structure and HOAs

One of the key aspects of condominiums is the ownership structure.

Condo owners have exclusive rights to their individual units, allowing them to modify and enjoy the space as they see fit. However, they also have shared responsibilities with other unit owners for the maintenance and management of common areas through a homeowners association (HOA). The HOA collects fees from owners to cover expenses like landscaping, maintenance, and repairs.

Benefits of Condominium Living

Condo living offers several benefits, including access to shared amenities such as swimming pools, fitness centers, and community spaces. Reduced maintenance responsibilities, as the HOA handles external upkeep, appeal to those preferring to spend their time enjoying their property. Security features and controlled access to the building or community also provide residents with peace of mind.

Another advantage is the opportunity for community engagement and social interactions with fellow residents, making condominium living a great choice for those seeking a sense of community.

Lastly, condominiums can be more affordable than single-family homes, especially in desirable locations, making them an attractive option for first-time buyers or those looking to downsize.

Financing Considerations for Condominiums

When financing a condo, it’s important to consider the impact of HOA fees on affordability. These fees cover the costs of maintaining shared areas and amenities. Lenders may also require a condominium questionnaire to assess the financial health and management of the condo association, ensuring it is well-managed and financially stable.

Additionally, some lenders may impose restrictions on financing condos in buildings with a high percentage of investor-owned units. They may require a certain percentage of owner-occupied units to ensure the stability of the community and reduce the risks associated with a large number of rental units.

Furthermore, mortgage lenders may have different review processes for condominiums, ranging from limited reviews for established projects to full reviews for newer or more unique properties.

What is a Condotel?

Condotel Grove

A condotel, or condominium hotel, combines elements of both a condo and a hotel. Individual units are privately owned, but the property operates as a hotel or resort, offering amenities like check-in desks, maid services, and room service. This unique arrangement allows owners to enjoy their units for personal use while generating rental income by participating in the property’s rental program.

The Hybrid Ownership Model of Condotels

Condotels provide a hybrid ownership structure and rental income potential. Owners benefit from personal use combined with rental income when they are not using their units. The hotel management handles reservations, guest services, and housekeeping, making it convenient for owners to generate income from their units.

The rental income is typically shared between the owner and the hotel operator based on a predetermined agreement.

Financing Challenges and Opportunities in Condotel Loans

Financing condotels can be challenging due to their non-traditional nature. Condotel loans often fall outside conventional loan guidelines, making Non-Qualified Mortgage (Non-QM) loans a viable option. Non-QM loans offer flexibility in underwriting guidelines, considering rental income potential rather than solely relying on the borrower’s personal income.

Lenders may require a minimum Debt Service Coverage Ratio (DSCR) to ensure the rental income generated by the condotel covers the mortgage payments. This is crucial for assessing the property’s financial viability and its ability to generate rental income.

Additionally, mortgage lenders may have specific underwriting criteria for condotels, considering factors like the financial health of the hotel operator, occupancy rates, and management agreements.

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Become a Partner


Understanding the basics of condominiums and condotels is essential for mortgage brokers to guide clients through the financing process. Condominiums offer a blend of ownership and shared amenities, making them an attractive choice for those who seek a convenient and community-oriented lifestyle.In contrast, condotels provide an opportunity for personal use and rental income, combining the benefits of a vacation property with hotel services.

If you’re interested in exploring condotel loans and how they can benefit your investment strategy, contact A&D Mortgage today to learn more about our flexible financing options.

Our Loan Calculator can be an invaluable asset in your quest to secure the most advantageous mortgage rates. Be sure to explore our Programs section for additional resources tailored to your needs. If you have specific scenarios in mind, don’t hesitate to request them; we’re here to assist you. And if you want to provide even value to your clients, consider becoming a partner with us. Together, we can empower individuals and families to achieve their dreams of homeownership.

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Carl Holman

Written by

Carl Holman

Communications Manager

As A&D Mortgage’s Communications Manager. Carl Holman has more than 20 years of expertise in marketing, media relations, and communications, having spent 10 years of his career in mortgage lending and real estate. He holds a Bachelor’s in Journalism and Mass Communications from the University of South Carolina.