For some, condos check all the boxes on their home-buying list and sometimes include benefits like pools, gyms, and more. You get more independence when you purchase a condo instead of renting; it’s also a great way to build up equity that you can use to purchase a house later on. But buying a condo isn’t quite the same as buying a detached, single-family home.
Before any condo financing talks can begin, you must find out if the condo you want is warrantable or non-warrantable.
Assigning a warrantable or non-warrantable status to a condo is an official way for lenders to determine the risk of financing them. Where houses are stand-alone buildings that you are purchasing, a condo is a unit within a shared building, so the health of the community as a whole must be considered when deciding if a condo is a safe investment or not.
What is a warrantable condo?
A warrantable condo is one that can be financed following conventional mortgaging methods because these condos are seen as less risky to lenders. These condos are approved by at least one of two government-sponsored enterprises, Fannie Mae and Freddie Mac, or are eligible for government-guaranteed financing through FHA or VA. While Fannie Mae and Freddie Mac do not provide a list of all the condos that they approve, you can find a list of FHA-approved ones on the U.S. Department of Housing and Urban Development’s website. To find out if a condo is Fannie Mae/Freddie Mac approved, your realtor or lender will have to send the condo community a questionnaire to gather the necessary information to determine it it is warrantable.
A condo must meet a long list of requirements to be approved by Fannie Mae and Freddie Mac. And once a condo is deemed warrantable, it can still become unwarrantable later on. In fact, it’s not uncommon for a condo’s status to switch between the two frequently.
Requirements for a Warrantable Condo
- Must not be part of a timeshare.
- Cannot include manufactured housing.
- Cannot be part of a continuing care facility.
- Cannot require a membership to a country club or golf club.
- Must not operate as a condotel (hotel) or short-term rental.
- Condo project must be complete and not under construction.
- Units must be 50% or more owner-occupied.
- Condo community must contribute at least 10% of its annual budget to a reserve account.
- A single person or entity must not own more than 10% of the units.
- Less than 25% of the community space is used for commercial purposes.
- Must not be involved in any form of litigation.
- Must not have a high percentage of residents delinquent on association dues.
Should I avoid all non-warrantable condos?
No! Don’t let that list of requirements for warrantable status discourage you! If you have your heart set on a condo that checks all the boxes on your list but is labeled non-warrantable, you still have options! The first step: talk to someone who has years of experience buying and selling condominiums – like Ellen!
It’s essential, just like when you buy or sell a single-family home, that you have a strong team on your side who knows the ins and outs of the condo market. Non-warrantable condos will require a special kind of loan instead of the conventional home loan you may have been expecting. You’ll need a fair lender that can provide you with a portfolio loan. A portfolio loan is one that is originated, underwritten, and maintained within the lender’s portfolio instead of being sold on the secondary mortgage market. Some lenders will use this portfolio loan to their own advantage, with harsh underwriting and steep down payments, since they can say a non-warrantable condo is a high-risk investment.
Luckily, Ellen has a guy who is a mortgage expert that can help you navigate the difficult maze that is condo financing! Their combined expertise and knowledge make them valuable assets that can help you secure that condo you have been dreaming of!
