Is buying a condo in Seattle for you?
Buying a condo in Seattle can be attractive to home buyers due to sometimes being less expensive than single family homes. However, that doesn’t mean it is easier, easier to finance or right for you. This is especially true of non-warrantable condos.So, what are they, how are they different, what do you need to know?
What’s A Condo?
A condo is a development in which all the owners share community space and are financially responsible for it. That includes the parking areas, landscaping, lobbies and all the exterior spaces outside of individual units.
You might envision a condo as a tall tower. Yet, condos can come in many shapes and sizes and designs. They can include many buildings of different heights. They can include townhouses, hotel style developments and duplexes or single family home units which are incorporated as condos. It’s all about the legal structure.
Non- Warrantable Condos: What’s The Difference?
If you’re reading this there is a good chance you’ve already found a condo you wanted to buy, but were turned down by a mortgage lender because it was non-warrantable. So, what does that mean? Should you give up and find another property? Are there any ways you can get this property financed?
A warrantable or non-warrantable condo refers to whether is has been approved by Fannie Mae and Freddie Mac for lending via conventional mortgages, or not.
The rules of exactly what qualifies condo is warrantable can evolve over time. Though generally come down to these factors.
- No one owner owners more than 10% of the units
- At least 50% of the units are owned by owner occupants or as second homes
- The association is not in a lawsuit
- The association has sufficient financial reserves
- Less than 15% of the owners can be delinquent on their association dues
- Commercial space cannot exceed 35% of the space
- 70% of units in a new development have been sold
- The association has been turned over to the owners
- There are no mandatory member fees (golf, tennis, clubs, etc.)
The development also has to be specifically approved by these entities too. These approvals also expire over time and have to be renewed.
If you are going for a low down payment FHA loan, the condominium project needs to be FHA approved.
Some parts of the country have virtually zero warrantable or FHA approved condominium projects. Fortunately, Seattle does have some.
If you are shopping for a home in Seattle and you really have to have a condo, it will be much easier if you first check these lists for approved condos. It will save a whole lot of heartache and frustration. Check the FHA list here. Check the Fannie Mae list here.
Hacks For Buying A Non-warrantable Condo
If you really have to have one, here are four ways to pull it off.
1. Mortgage Brokers & Portfolio Loans
Conventional mortgages sold to Fannie Mae and Freddie Mac or government sponsored mortgages (FHA and VA) may not work for non-warrantable condos. However there are a few lenders who will lend on them. They will keep these loans on their books and service them instead of selling them on in the secondary market. As with all condos and alternative housing, there may be slightly higher interest rates or other underwriting requirements, but they can be financed. Instead of driving yourself crazy trying to find these lenders, work with the best Seattle mortgage broker who can connect you right away without all the guesswork.
2. Larger Down Payments
The main issue with non-warrantable condos is that lenders see them as riskier. Making a larger down payment can certainly help them feel more comfortable that you are sharing in this risk.
3. Pay Cash
You can also just pay all cash for these properties. It is the easiest and fastest way to buy them.
4. Get Them Approved
You can ask the association to get approved with these agencies or to work on renewing their approvals. The odds they will want to go through the process may be low. Certainly don’t expect it to be fast. Though it is in the best interest of all the owners in the community.
The Downsides Of Buying Condos
While they may seem cheaper, and they may be right for some people, there are downsides of buying condos and specifically non-warrantable condos.
Number one for non-warrantable condos is that if you are having a hard time financing them, then so is the next buyer? That means far fewer buyers you can sell to in the future. That means lower selling prices than competing properties.
Getting approved by condo associations may not be fun either. Sometimes it can be much harder than getting the mortgage.
Then there are the condo association dues. Some associations will have multiple layers of fees. They can be due monthly, quarterly and annually. These also count against your debt to income ratio. So, if you are already having a hard time getting financing, this can add a whole new challenge.
Since you as a condo owner is responsible for funding the operations of the entire project, you can be on the hook for special assessments. For example, when a storm damages the roof or there is flooding. All the owners have to chip in to pay for it.
Then there are the condo association rules. Some may be very light. Others are hundreds of pages thick. There can be rules on how soon you can resell your unit, if you can rent your unit or not, and much more.