How to Finance a Non-Warrantable Condo

You’ve found the perfect condo. It’s located in a great part of town, it offers convenient amenities, and it’s a great place for you to call home. But in the process of learning more about the property, you discover that the condo is non-warrantable. What does this mean for you and your potential new home?

If you discover the condo you’d like to buy is non-warrantable, know that it’s still possible to finance it. You just need to know what your financing options are and what requirements you’ll need to meet in order to purchase it.

What is a Non-Warrantable Condo?

A condominium, or condo, is a unit that’s part of a condo project. The unit can be on the floor of a high-rise building, or it can be a one-story unit in a smaller complex. Condo units are owned by individuals and include shared common areas that are maintained by a homeowner’s association.

If a condo is classified as warrantable, this means it meets a list of certain guidelines set by Fannie Mae and Freddie Mac. But if a condo fails to meet these requirements, it’s labeled as non-warrantable, and loans used to finance these properties won’t be bought by these two government-sponsored entities.

A condo unit might be considered non-warrantable if:

• The project is new construction and/or has yet to be completed
• The developer has not turned over control of the HOA to the owners
• A high percentage of units are occupied by non-owners
• The community allows short-term rentals
• A single person or entity owns more than 10% of the total number of units
• The building owner or developer is involved in litigation of any kind

Non-warrantable properties commonly include condo hotels (condotels), timeshares, fractional ownership properties, multi-unit condos, condos in a permanent care/assistance residence, and properties that require owners to join an organization, like a golf club.

If you are unsure whether the condo you want to buy is warrantable, your realtor, lender, or condo’s management office will have the resources available to help you determine this. You can also try checking on your own through a database run by the Department of Housing and Urban Development for either FHA or VA warrantable condos. You just have to enter the condo by its name, location, or status.

Challenges of Financing a Non-Warrantable Condo

Since you won’t be able to finance a non-warrantable condo using a loan backed by Fannie Mae, Freddie Mac, the FHA, or VA, there are more limited loan options for borrowers seeking to purchase these properties.

The good news is there are lenders that offer mortgage loans for non-warrantable condos. Lenders will offer the option to take out a portfolio loan to finance a non-warrantable condo instead of these other types of loans. A portfolio loan is when the lender originates and retains the loan instead of selling it to the secondary mortgage market.

Mortgage Loans for Non-Warrantable Condos

Since lenders take on the responsibility for these loans, they may have more stringent rules and requirements that the condo project and borrowers must meet. Keep in mind that the specifics of these requirements vary depending on the lender you go with.

Condo and HOA Requirements

Oftentimes your lender will have to work with the HOA to gather the necessary information to determine if the property can be approved for financing. If you’re working with a real estate agent, ask them for help in getting the association to cooperate in a timely manner to provide all the numbers and paperwork the lender requests.

The lender will need to know the percentage of condo units in the community that is delinquent on their HOA/condo fees, whether the HOA is involved in any active lawsuits, if it carries sufficient insurance/reserves, and the percentage of owner-occupied units in the condo project. Once your lender confirms the condo community or association meets the financial and legal criteria, your loan process can proceed.

Borrower Requirements

Lenders will also verify that the borrower meets certain requirements to qualify for a loan. Because these mortgages are not backed by the government, borrowers may have to put down a larger down payment, as well as pay a higher interest rate on their loan. Borrowers will also need a good credit score that meets the lender’s requirement, and they’ll potentially be required to have payment reserves.

Your lender will take all these factors into consideration to determine whether the property is satisfactory and that you are in a good financial position to be able to pay back the loan. At the end of the day, non-warrantable condos loans are issued on a case-by-case basis.

Set Yourself up for Success

One of the best decisions you can make when purchasing a non-warrantable condo is to work with a knowledgeable real estate agent. An agent can provide the expertise and guidance you need to navigate a transaction like this.

It’s equally important to work with an experienced lender who can walk you smoothly through the mortgage process. This will help reduce any stress or bumps in the road you may encounter when buying your new condo.

Much of your success in being able to finance a non-warrantable condo is being a strong candidate who can meet the financial requirements and working with a knowledgeable team when buying this type of home.

Now that you know what to expect when you want to buy this type of property, you can team up with a lender who will help you finance the condo that you’re excited to call home.

Are you interested in financing a non-warrantable condo? We offer a range of financing solutions for condos, so you can find the mortgage you want without any hassles. Let our team of experts help you find the right solutions to finance your condo unit today.