4 Secrets to Buying a Non-Warrantable Condo

Updated on March 4, 2024

Is buying a condo in Seattle right for you?

Buying a condo can be appealing to first-time home buyers, single professionals and young families because they’re typically less expensive than single-family homes. However, that doesn’t necessarily make the process any easier. In fact, if your dream condo unit is a non-warrantable condo, the financing process can be complex.

The very mention of the term "non-warrantable condo" is likely to prompt several questions:

• What is a non-warrantable condo, exactly?
• How is it different from a regular condo?
• Do conventional lenders finance non-warrantable condo loans?

In the article below, we'll answer everything you need to know about non-warrantable condos, how to secure financing for the condo unit you want, and whether a non-warrantable condo is right for you.

Let's start with the basics.

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, sizes, and designs, including townhouses, hotel-style developments, and duplexes or single family home units which are incorporated as condos.

The designation of a property as a condominium is something that's legally established under real estate law, qualifying because of its specific ownership structure and governance model.

Understanding Non-Warrantable Condos

If you’re researching non-warrantable condos, there's a good chance you’ve already found a condo you wanted to buy, but were turned down by conventional mortgage lenders because it was a non-warrantable condo.

So, where does that leave you? Should you give up and find another property? Are there any ways to finance a non-warrantable condo?

The Importance of Fannie Mae and Freddie Mac

Before we get into this, let's first identify the difference between a warrantable condo and a non-warrantable condo. What it ultimately comes down to is whether or not the property has been approved by Fannie Mae and Freddie Mac for lending via conventional mortgages.

The rules for determining whether a property is a warrantable or non-warrantable condo can evolve over time, but it generally comes down to these factors:

• No one owner owns more than 10% of the units.
• At least 50% of the units are owned by owner occupants or as second homes.
• The condo association is not in a lawsuit.
• The condo association is deemed to be in good financial health.
• Less than 15% of the owners can be delinquent on their association dues.
• Commercial space cannot exceed 35% of the building's overall square footage.
• 70% of units in a new development have been sold.
• The association has been turned over to the owners.
• There are no additional mandatory member fees (golf club, tennis court access, etc.).

The development also has to be specifically approved by Fannie Mae and Freddie Mac's conventional standards, or it will be considered non-warrantable. These approvals also expire over time and have to be renewed. It's just like if you're looking for approval on a low down payment FHA loan, the condominium project would need to be FHA approved.

If you're shopping for a home in Seattle and you have your heart or budget set on a condo, it will be much easier if you begin by checking these lists for approved condos:

• Check the FHA list here.
• Check the Fannie Mae list here.

It could save a whole lot of heartache and frustration.

How to Get Non-Warrantable Condo Loans

However, if you're determined to secure a non-warrantable condo loan, the qualification process will be onerous, but it can still be done.

Here are four ways to pull it off:

1. Mortgage Broker & Portfolio Loan

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 lenders who will finance a non-warrantable condo mortgage.

They keep non-warrantable condo loans on their books and service them instead of selling them in the secondary mortgage market. As with all condos and alternative housing, there may be slightly higher interest rates or other underwriting requirements, but they can be financed.

Finding a lender like this can be extremely difficult, however. Instead of driving yourself crazy searching for someone to finance a non-warrantable condo mortgage, reach out to Seattle's Mortgage Broker.

We'll connect you right away to realistic options customized to your specific situation, without all the time and energy you'd otherwise have to spend doing it on your own.

2. Larger Down Payment

With enough liquidity, you may be able to secure a non-warrantable condo loan by paying more money up front.

The main issue with non-warrantable condos is that lenders see them as riskier. Larger down payments mean a larger share of the risk. This helps a lender feel more comfortable that you'll make good on your loan over time.

3. Pay Cash

Speaking of liquidity, it may seem obvious, but if you have enough cash on hand, the non-warrantable category doesn't really apply to you.

You can always pay cash for non-warrantable properties and bypass mortgage lenders altogether. It's still the easiest and fastest way to buy anything.

4. Get The Condo Property Approved

You can connect with the condo's management office and ask the association to get approved with the proper agencies or to work on renewing their previous approvals.

The odds they will want to go through the process may be low, but there is no harm in asking. Certainly don’t expect it to be fast. Though it is in the best interest of all the owners in the community if their condo is warrantable.

The Downside To Buying A Condo

It's important to be aware that while they may not be as cost prohibitive as other property types, there are downsides to buying condos — specifically non-warrantable condos:

• When You Go To Sell: The number one hidden downside for non-warrantable condos is that if you're having trouble finding financing options, the next buyer will too. The difficulty in securing non-warrantable condo mortgages means far fewer buyers will be in the market when you look to sell in the future. This will ultimately translate into lower selling prices than competing properties.
• Additional Approvals: Getting approved by condo associations can also throw a wrench into your plans. Sometimes this can even be harder than getting the mortgage.
• Extra Costs: 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 to the process.
• Added Responsibility: As a condo owner, you're a part-owner of the entire property, and as such, you're responsible for it. This means 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.
• Lack of Control: Then there are the condo association rules. Some may be very light. Others are recorded in binders that include hundreds of pages. There can be rules on how soon you can resell your unit, if you can rent your unit or not, and much more.

Seattle's Mortgage Broker Can Help See You Through The Process

But the heart wants what the heart wants.

If you've got your mind set on a condo in Seattle — whether it's warrantable or non-warrantable — Seattle's Mortgage Broker is here to help you through the buying process. We've helped hundreds of home buyers secure a low monthly mortgage payment and favorable terms for their new condos. And we're here to help you, too.

By this time next week, you could be closing on your new loan. Reach out to us today, and let's explore your options together.