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Getting a Home Mortgage Loan for a Condo? Find Out The Difference Between Warrantable and Non-Warrantable

Warrantable or Non-Warrantable? Your Condo Loan Options

Before you get your heart set on one particular condo, do you know if it’s classified as warrantable or non-warrantable? Mortgage lenders like Fannie Mae and Freddie Mac consider some condos to be high risk under certain circumstances. When they deem this the case, they will decline to buy loans related to the condo, which places the property in the non-warrantable category.

Understanding Warrantable and Non-Warrantable Condo Loans

This situation can leave buyers with little options when it comes to finding a non-warrantable condo loan. However, a non-warrantable status doesn’t mean finding proper financing is out of the question. Below are some commonly asked questions about non-warrantable and warrantable condos to help you understand the qualification process and your financing options.

Why are condos subjected to warrantability statuses?

When you’re buying a house, the entire building is up for grabs to become yours. But when it comes to condos, the financial and physical health of the entire development will affect the risk level of the loan. Therefore, lenders are going to be analyze more than just your credit score and how much of a down payment you’re offering.

First time homebuyer? Here are 7 reasons why a condo is ideal for you.

What makes a condo non-warrantable?

There is a classification system for condo mortgage loans to determine if it is warrantable or non-warrantable. For example, a condo is labeled warrantable if:

  • There are no lawsuits targeting the homeowner’s association (HOA)
  • Less than 15% of the other occupants are in debt with their association dues
  • Commercial space accounts for no more than 25% of the building’s square footage
  • The majority of the units (at least 51%) are occupied by a owner

Non-warrantable condos are usually properties like time shares, condo hotels (condotels) and buildings that require owners to join an organization.

You can read more about what makes a condo non-warrantable on Fannie Mae’s website here.

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Why does being a warrantable condo matter?

If a condo doesn’t meet Fannie Mae and Freddie Mac’s conventional standards, then it’s considered non-warrantable and usually it’s harder to finance.

Many mortgage brokers will not lend to a buyer of a non-warrantable condo since Fannie Mae and Freddie Mac won’t buy those mortgages. Unfortunately, this limits the borrowing options for potential homeowners seeking a condo mortgage loan. The remaining lenders look at non-warrantable condo loans as an increased risk, and will typically only offer financing at high interest rates with large down payment requirements.

See the current mortgage rates here.

What are my options if my condo is non-warrantable?

If the condo you’re been dreaming of is considered non-warrantable, there are still options to help you secure a home mortgage loan.

New condos will often work with preferred lenders who will provide home mortgage loans before the condos are able to become warrantable. Other financing options, such as an FHA or VA loan, may also be available to you.

And remember, you can always refinance once a condo’s status changes. This has a ton of benefits like helping you lock in a better interest rate, reducing your loan terms and lowering your monthly mortgage payments.

How can I find out if a condo is warrantable?

Your realtor, mortgage broker and the condo’s management office should have the resources to determine if the condo you’re interested in is warrantable or non-warrantable.

The Department of Housing and Urban Development also keeps a database of warrantable condos that will be applicable for an FHA loan. This resource is also available for VA loans here.

Always Remember:

Whether a condo is warrantable or non-warrantable changes on a semi-regular basis as ownership changes and tenants move in and out. So, just because a condo isn’t warrantable now, doesn’t mean it won’t be in the future!

At Blue Water Mortgage, we also have a number of alternative financing options for non-warrantable condo loans. If you need help securing a loan for your warrantable condo, or need options for a non-warrantable property, contact one of our loan experts today. We’re happy to answer any questions you may have – even during the weekends!

Roger Odoardi

Roger is an owner and licensed Loan Officer at Blue Water Mortgage. He graduated from the University of New Hampshire’s Whittemore School of Business and has been a leader in the mortgage industry for over 20 years. Roger has personally originated over 2500 residential loans and is considered to be in the top 1% of NH Loan Officers by leading national lender United Wholesale Mortgage.

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