NON-WARRANTABLE CONDO FINANCING
Mortgage lenders follow specific criteria when approving loans for condominium purchases, distinct from the standards used for other types of properties. When applying for a condo mortgage, your creditworthiness is not the sole factor; the lender must also ensure that the condo development has a robust financial and management foundation.
Not all condo developments adhere to the stringent guidelines set by Fannie Mae and Freddie Mac, which designate them as “warrantable.” Condos failing to meet these standards are labeled as non-warrantable, posing greater financing challenges. Therefore, it’s crucial to inquire about a condo’s warrantability status from your real estate agent, developer, or mortgage lender before making an offer.
A condo is deemed warrantable if:
- No single entity owns more than 10% of the units, including the developer.
- At least 51% of the units are owner-occupied.
- Less than 15% of the units are behind on association dues.
- The homeowners association (HOA) is not involved in any lawsuits.
- Commercial space accounts for 25% or less of the total building square footage.
A condo becomes non-warrantable if:
- The project is incomplete.
- The developer has not transferred HOA control to the owners.
- Short-term rentals are permitted within the community.
- A single entity owns more than 10% of all units.
- Most units are rented to non-owners.
- Additionally, it’s crucial to determine if the development is entangled in any legal disputes.
- Regardless of the condo’s role as a plaintiff or defendant, any involvement in litigation usually categorizes it as “non-warrantable.” Being aware of these distinctions can significantly impact your condo purchase process and financing options.