Your Guide to Condotel Mortgages – Financing Strategies and More

Condotels, or condo hotels, are unique real estate investments that blend the convenience of condominium ownership with the amenities of a hotel. They’ve grown in popularity in tourist-heavy regions across North America, particularly in vacation destinations like Florida, Hawaii, Nevada, and parts of Canada.

While the concept offers an enticing opportunity for income generation and personal use, financing a condotel isn't as straightforward as buying a traditional condo or single-family home.

In this guide, we’ll explore everything you need to know about condotel mortgages—what they are, why they’re considered risky by traditional lenders, and how you can secure financing for one.

What Is a Condotel?

A condotel is a building that operates both as a hotel and a condominium. Each unit in the building is individually owned, and owners can stay in their unit whenever they like. When they’re not using it, they can place it in the hotel’s rental program, earning rental income while the hotel handles bookings, maintenance, and guest services.

Condotels typically offer resort-style amenities like pools, spas, restaurants, gyms, and concierge service. Units often come fully furnished and include things like linens, kitchenware, and housekeeping services.

While this dual-purpose functionality is appealing for investors and vacationers alike, it also introduces unique challenges—particularly when it comes to securing a mortgage.

Why Condotels Are Harder to Finance

From a lender’s perspective, condotels are considered “non-warrantable properties”, meaning they don’t meet the criteria for traditional loans backed by government-sponsored entities like Fannie Mae or Freddie Mac (or CMHC in Canada). Lenders see these properties as riskier due to:

• High investor concentration: Many units are not owner-occupied.

• Short-term rentals: These are seen as riskier than long-term leases.

• Unpredictable cash flow: Revenue depends on tourism and seasonality.

• Shared amenities and services: These may involve third-party management contracts.

Because of these risk factors, traditional banks and credit unions often decline condotel mortgage applications, pushing buyers to seek alternative forms of financing.

Key Challenges of Condotel Mortgages

1. Higher Interest Rates

Since condotels are riskier investments, expect to pay a higher interest rate than you would for a traditional mortgage. Rates can be 0.5% to 2% higher, depending on the lender and your personal financial profile.

2. Larger Down Payments

Many condotel loans require a minimum of 20% to 30% down, sometimes even more. If you’re buying the unit purely as an investment (not as a second home), that minimum could go up.

3. Limited Pool of Lenders

Only a small number of lenders specialize in condotel or non-warrantable condo financing. You'll likely need to work with mortgage brokers who have access to private lenders or niche banks that understand the product.

4. Stricter Borrower Requirements

You may need a credit score of 680 or higher, a strong debt-to-income ratio, and proof of sufficient reserves or liquid assets. Owning another property may help demonstrate financial stability, but it’s not necessarily required.

Financing Strategies for Buying a Condotel

Despite the challenges, there are proven financing routes for purchasing a condotel. Below are the most common strategies:

1. Non-QM (Non-Qualified Mortgage) Loans

Non-QM loans are specifically designed for properties that don’t meet conventional guidelines. These loans:

• Accept self-employed or non-traditional income.

• Allow higher debt-to-income ratios.

• Are more flexible in property types (including condotels).

Cons: Higher rates and fees, shorter loan terms.

2. Portfolio Loans

Some banks keep certain mortgages in-house rather than selling them to government agencies. These are called portfolio loans, and they offer:

• More lenient underwriting.

• Willingness to finance non-warrantable properties.

Cons: May be offered only by regional banks or credit unions.

3. Private Lenders or Hard Money Loans

Private lenders may not follow traditional lending rules, making them useful for condotels. They’re ideal for:

• Buyers with poor or limited credit.

• People looking for quick financing.

Cons: Higher interest rates (sometimes 8% or more), shorter repayment terms.

4. Home Equity Loan or HELOC

If you already own a property with significant equity, you may be able to take out a home equity line of credit (HELOC) or loan and use those funds to purchase the condotel outright or make a large down payment.

Pros: No need for a new mortgage on the condotel. Cons: Your primary home is used as collateral.

What Lenders Look For in a Condotel

When evaluating whether to finance a condotel, lenders usually examine:

• Square footage: Units often must be larger than 500–600 sq. ft.

• Unit layout: Must have a separate bedroom and kitchen facilities.

• Occupancy: Some lenders require the property to be used as a second home, not a full-time investment.

• Building financials: Healthy reserves in the HOA or condo corporation are a good sign.

• Litigation: If the condo building is involved in a lawsuit, most lenders will walk away.

Always request the condo documents and financial statements before making an offer. Lenders may also ask for a rental history or pro forma to assess income potential.

Can You Live in a Condotel Full-Time?

In some cases, yes—but it depends on zoning regulations and building rules. Some condotels are in vacation-only zones, meaning you can only stay for a limited number of days per year. Others may allow for full-time residency in certain units. Always check with your real estate agent and the building’s HOA before assuming you can live there permanently.

Consider the Exit Strategy

One of the biggest risks with condotels is resale. Because financing is harder to secure, your future pool of buyers is limited—often to all-cash buyers or other investors who understand non-warrantable loans. Be prepared to:

• Hold the property longer than a traditional investment.

• Sell at a discount compared to similar non-condotel units.

• Target investors or use creative seller financing to close deals.

Final Thoughts

Condotel mortgages come with complexities, but for the right buyer, they offer an appealing mix of personal enjoyment and rental income. If you’re considering purchasing a condotel, work with professionals who understand this niche market. A knowledgeable mortgage broker and real estate agent can save you from costly mistakes and help you find financing that fits your goals.

Always remember:

• Shop around—rates and terms vary widely.

• Know your numbers—project income and understand your budget.

• Understand the rules—not all condotels are alike.

With the right approach and a bit of due diligence, condotel ownership can be a smart and profitable addition to your real estate portfolio.