If you’re thinking of buying a condo, it’s imperative that you know what you’re getting into and how the past year has changed things. The rules and regulations for condominium mortgages have changed a lot in 2009…

In April, the two government-run mortgage companies, Fannie Mae and Freddie Mac, tightened their guidelines for those looking to own a condo or any multi-family home. The restrictions make it difficult for potential buyers to obtain financing through Fannie Mae and Freddie Mac, making the mortgage more expensive.

The April policy requires that the association and the operations of the condominium be evaluated, as well as its credit ratings. The new requirements touch on topics such as:

Association insurance.
financial statements
State of the debt receivable of those who live in the condominium
Who owns which units
how many units are empty

If the condo you’re looking for doesn’t come back with a good report, you may need to go to a private mortgage insurer. Unfortunately, private insurers are becoming even more demanding; some have stopped covering condo mortgages altogether. In order to get a loan, even with good credit, you can end up paying up to 40% down to get mortgage payments you can afford.

However, even if the condo is approved, you will still need to get the 25% or prove government financing. Fannie Mae and Freddie Mac say it doesn’t matter what your credit score is. If you can’t pay 25% or more down, you’ll end up with an additional three-quarters penalty: $750 for every $100,000 borrowed. What is the penalty for? Don’t buy a “traditional” single-family home.

What is the moral of the story? If you want to buy a condo, spend more time researching than usual. Look for those that have at least a 50% occupancy rate. Find out if the occupants pay what they owe and if one person owns more than 10% (a big “no deal” for the two mortgage companies). There are good condos available, but the rules make buying a difficult game to play.