Your options for townhouse financing will depend on the ownership concept in your community of interest. Your options for townhouse financing will depend on the ownership concept in your community of interest.

 Financing Fee-Simple Townhouses

Fee simple is the highest form of ownership and grants title to the property, the land, and any improvements to the land in perpetuity.   A fee simple owner has the right to possess, use, and dispose of the land as he or she wishes.  Fee simple owners can lease their property, sell it, trade it, and pass it to others upon death.  Of course, there are limitations.  Encumbrances can still be placed on the property if the owner fails to pay their mortgage, property taxes, or expenses for improvements through a mechanic’s lien.  The homeowner will also need to abide by any zoning or HOA restrictions in place.  It is common for homeowner’s associations to require approval from their architectural review board for renovations that could interfere with the uniformity of the community.

Townhouses that offer fee-simple ownership are eligible for the same loan products as single-family homes. Government-backed loans like FHA, FHA 203K, and VA loans are available as well as a wide variety of conventional conforming and non-conforming products, both private and retail. The lender will have to take homeowners association dues and any upcoming or levied assessments into consideration. Some associations cover insurance while others don’t, this is another important factor for calculating carrying costs. If these additional fees are too high, they could push the buyer outside the lender’s acceptable debt to income ratio resulting in loan disqualification.

Financing Condominiums

You are likely to have fewer options for townhouse financing in a community that is governed by a condominium association. In these cases, obtaining government-backed financing can be more difficult. You would need to ask your lender if the condominium complex has been approved for FHA / VA financing. If the complex hasn’t been approved, the lender might be able to perform a single unit approval. If your lender is unwilling or unable to do single-unit FHA / VA approval, you can always shop around for a lender that is more comfortable with the process.