There are some screaming deals on condos out there--if you can get financing. But if you don't know what you're doing, you could end up pulling all of your hair out, drinking yourself silly, and ruining every friendship you have. Here's what you need to know to make your next condo mortgage go smoothly.

Should Friends Let Friends Buy Condos?

Most new home lenders sell their loans to government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, or insure the mortgages through FHA. These entities have some tough new requirements for condos, and approval is not merely a formality. That said, you can get a fantastic deal on the right condo--and if you're smart about it, you can finance it right too.

The Condo Conundrum

One requirement that can be problematic is that the US Department of Housing and Urban Development (HUD) wants 50% of condo units in a new development to be pre-sold before it will allow FHA financing. Fannie/Freddie want 70% of them sold before they will approve financing. But how can they be pre-sold unless buyers can get financing? It's a catch-22. One way out is to ask new home lenders like small local banks, or try filling out the form on GuidetoLenders.com. Lenders that service their own mortgages are more likely to approve financing for non-conformist condos.

Finagling with Fannie and Freddie

Fannie and Freddie do list approved condominium projects, and if you buy these units you should be able to finance them. Unfortunately, the backlog of complexes waiting for approval is pretty huge, and the lists of approved projects are pretty short. "Spot" approval for individual units can be requested if the condo project meets the following criteria:

• Mixed-use developments can't have more than 20% commercial space.
• At least 85% of the units must be current on their homeowners association (HOA) dues. Deadbeat owners can kill a project's approval.
• No "vulture" owners--those controlling more than 10% of the units in a development.
• With projects of 20 or more units, the HOA must have fidelity insurance (in case the treasurer takes the association's money to Vegas).
• For a new development, 70% of the units must be pre-sold. That can be a big booger if you want a brand-new home.
• The HOA must have capital reserves of at least 10% of its budgeted income--so it can handle neighborhood kids dropping a dumpster load of detergent into the swimming pool or other unexpected expenses.

FHA: Picky, Picky, Picky

FHA will only finance condos on its approved list--it does not issue "spot" approvals of individual units. FHA guidelines allow up to 25% commercial space in a development. Newly built projects must meet the following extra criteria:

• A minimum of 50% of the units must be owner-occupied.
• A minimum of 50% of the units must be pre-sold.

Approved condo projects can be found on HUD's website.

Condos and Mortgage Insurance: Look Out!

If you need mortgage insurance to buy your condo, know that any of the following can make a condo ineligible for mortgage insurance:

• Tenant/investor ratio above 30% (insurers don't like renters)
• Pending lawsuits (they don't like lawyers either)
• Ugly buildings (really!)
• Delinquencies/foreclosures (duh)

In addition, credit score requirements for those financing a condo can be as high as 740 in order to get mortgage insurance.

Getting a new home loan or a refinance mortgage for a condo may take longer than financing a single-family home, especially if you need to get a "spot" approval. Keep that in mind when you lock in your mortgage rate. Understanding lenders' condo guidelines can keep you from wasting your time, wrecking your skin, and ruining your digestion.