NON-WARRANTABLE CONDO LOANS
If you're looking into buying a condo, one of the first questions you should ask is: is this a warrantable or non-warrantable condo? While non-warrantable condos are less common than conventional, it can be more difficult to find a lender for this type of mortgage.
A non-warrantable condo is essentially a condo property that is not eligible to be sold to Freddie Mac or Fannie Mae, which in turn makes banks consider them to be risky loans.
Generally, a condo is considered non-warrantable if:
- It has less than 50% owner-occupancy – In a nutshell: Less than 50% of the occupants in a complex are the owners. Many times, these units are rentals and tenant-occupied.
- 10% Ownership in a Development – If one person owns more than 10% of a development, it is seen as one person having too much control over the development's value, making the complex potentially unstable. This also includes developments where multiple properties have been foreclosed on.
- 15% Delinquency – If more than 15% of a development's owners are more than 30 days delinquent at the time of inquiry, it will be considered non-warrantable. These delinquencies can include regular HOA fees, fines for rule violations, and non-payment of work orders.
- 10% Cap Reserve – All HOAs looking to be considered warrantable will need to have a line item in their annual budget showing that the development is depositing 10% of their annual income into a Capital Reserve fund. This fund is used for larger projects like roofs, foundation repairs, irrigation system updates, and road maintenance.
- You're the First - If you are the first person or one of the first people to purchase in a brand new condo development, it may be considered non-warrantable.
Non-warrantable loans can be pretty tricky to finance, but be sure to find out the exact reason the condo is considered non-warrantable! There are some cases where a condo may be described as that but is actually not technically in that category and therefore can be financed more easily.
If you have any questions, talk to your lender or give John a call at (512) 524-8310 or email him here. We'd be happy to help you with any questions!