Are you thinking about buying a condo in Seattle?

There are many property types available for home buyers in Seattle. Before you sign that offer it pays to know some of the most important quirks that some of them bring.

If you know what you are getting into a non-warrantable condo may become your dream home. If you are not prepared, your mortgage and moving plans could fall into chaos pretty fast.

So, what is a non-warrantable condo? What do you need to know about them?

What Is A Condo?

For many people the word ‘condo’ instantly conjures up images of tall skyscrapers and small apartments. They can be. Yet, a condominium has nothing to do with looks at all.

Condos can actually come in a huge variety of shapes and forms and sizes. This designation is a legal one, and has nothing to do with the design or architecture.

They can be multi-tower apartment developments, townhomes, skyscrapers, older low rise buildings, duplex villas, and even neighborhoods of single family homes.

A condominium is a development. One which is legally run by a condo association. Owners can buy and fully own their own individual unit. Yet, all the unit owners jointly share community spaces. This can include the exteriors of their units and buildings, walkways, parking lots, gardens, lobbies, and amenities.

The condo association makes and enforces the rules. They have the ultimate say in who can buy and rent within their community.

Condos Versus Townhouses

Since a condo is defined by its legal organization and structure, a townhouse can be a condo too. Though not all townhouses are condos. It’s important to know the difference and read all of the restrictions and rules before you commit to a contract. Or it may prove to be a very disappointing, frustrating and expensive experience.

Condos Versus Coops

A co-op is another type of legal ownership and management structure for real estate.

Co-ops may be most famous and popular in New York City. Though can be found all over the country. Again, while they are often referred to interchangeably with apartments and condos, co-ops are also actually a legal differentiation.

A co-op is different in that buyers don’t actually get to own their own units. They are simply buying into a company which owns a building or development. A perk of their shares is being able to use their living unit.

The vast majority of lenders stay clear of co-ops due to not having physical bricks and mortar and land which they can foreclose on and seize if the borrower defaults.

Condos Versus Single family Homes In An Association

Single family homes, townhomes and duplexes or villas can also be a part of a homeowners association (HOA).

There are a lot of similarities between these associations and condominiums. They both have boards which make and enforce rules. They collect regular association dues from unit owners to cover shared community expenses.

While home owner associations aren’t as notorious as condos, they can have many of the same quirks when it comes to buying one, getting a mortgage on one, daily life, and ultimately planning to sell.

What Is A Non-Warrantable Condo?

Unfortunately, most don’t even know that there is such a thing as a non-warrantable condo until they have a bad experience with one.

That is typically after having signed a purchase contract and then being denied a mortgage loan. Or when they have tried to sell one, and discover it has become non-warrantable, and even eager buyers are failing at being able to follow through to a closing.

Whether a condo is warrantable or non-warrantable refers to if it is approved by Freddie Mac and Fannie Mae for conventional mortgages.

While these exact rules and percentages can be adjusted over time by these governing agencies, to be warrantable, a condo needs to meet the following criteria.

  • No single owner owns more than 10% of the units
  • 50% or more of the units are owned by residents or used as second homes
  • The association is not involved in a lawsuit
  • The association has enough financial reserves
  • Fewer than 15% of owners can be delinquent on association dues
  • Commercial space cannot exceed 35% of total space
  • 70% of units in a new development must have been sold
  • Association has been turned over to the owners
  • No mandatory member fees (golf, tennis, clubs, etc.)

Not only does the condo need to meet these criteria. The development needs to be specifically approved by these agencies. Approvals are time sensitive and expire too.

Check the approved (warrantable) condo lists for the area you are thinking of buying in here. and here.

Financing A Non-Warrantable Condo

One of the biggest and most common challenges with non-warrantable condos is financing.

Since the majority of mortgages are sold to Freddie Mac and Fannie Mae, and they don’t want to finance them, that seriously limits the loan options available to their buyers and anyone wanting to refinance one.

If you have already fallen in love with a non-warrantable condo you want to buy, or you are desperate to sell and can’t take another buyer falling out because of the financing, there are options.

Pay All Cash

This is certainly not ideal. It can be risky. It can negatively impact your overall finances.

Make A Larger Down Payment

Lenders view non-warrantable condos as being much riskier than other types of real estate. Making a larger down payment helps share this risk.

Get The Condominium Approved

You might ask the association if they will go through the process of getting approved or renewed. Many won’t want to bother. If they do, it can be a long wait, with no guarantees.

It’s not impossible to finance these properties. It may mean paying a slightly higher interest rate, putting more cash out of pocket and being a little more patient, but you can do it.

If that doesn’t sound attractive to you, then it may be wise to find a warrantable condo or other property type.

About the Author

Helping Seattleites buy their dream homes for over 15 years. Founder of Seattle's Mortgage Broker and author of Homeownership Simplified: The Truth about ZERO Down.