October 12

What Is A Non-Warrantable Condo?


(spoiler alert — we can finance them). However, you will find the financing to be a challenge at most other lenders.

Contact us today for a free quote and consultation if you are in a rush!

Condos are popular among young, first-time home buyers. They are both cheaper to buy and offer more services that attract young owners (pools, gyms, onsite retail, and more).

However, the process of buying a condo is more complicated than buying a single-family home. If you have the money in cash, the transaction is simple.

But if you need a mortgage, you quickly find that far fewer lenders are willing to finance your condo. Moreover, government agencies (FHA, VA, Freddie Mac, and Fannie Mae) have a long list of rules that your property must meet to receive a mortgage.

Unfortunately, FHA, Freddie Mac, and Fannie Mae also provide some of the best first-time home-buyer programs.

Why are condos different?

Lenders and government lending backers put condos into two categories: non-warrantable and warrantable. A non-warrantable condo is one that you cannot get a mortgage for through first-time buyer and other buyer-friendly programs.

Are you looking at making a condo your first home? Here's what you need to know if you want to participate in conventional financing.

What Is a Non-Warrantable Condo?

A non-warrantable condo fails to meet conventional financing guidelines, and as a result, government-backed entities won't provide funding for the purchase.

There are two separate lists of rules for Fannie Mae/Freddie Mac lending and FHA/VA lending.

When entities like Fannie Mae and Freddie Mac won't stand behind the property, then conventional lenders may also back away.

What causes a condo to be non-warrantable?

The answer depends on each finance provider. Some of the most common indicators for flagging a non-warrantable condo include:

  • New builds or incomplete projects
  • High-occupancy of non-owners
  • Use of short-term rentals
  • Developer involved in litigation

Common examples of non-warrantable properties are timeshares, condotels, multi-unit condos, assisted/living permanent care condos, club-based condos (golf clubs, leisure clubs, members' clubs), and fractional ownership properties.

Can I Buy a Non-Warrantable Condo?

Yes, you can buy a non-warrantable condo (spoiler alert, we can finance them). However, you will find the financing to be a challenge at most other lenders.

The simplest way to buy a condo is with cash. If you can put all the money down upfront, you don't need to worry about FHA or Freddie Mac's opinion. It' doesn't matter whether's it's warrantable.

If you have most, but not all of the cash, consider buying the condo via a land contract. In a land contract, the seller is the lender. However, these condos are both hard to find, and the seller usually requests full repayment in under five years.

Most people don't have $250,000-plus to put down on a condo. Fortunately, nationwide, state and local lenders do provide mortgages but only on warrantable condos. Your non-warrantable condo can become a warrantable condo if the only factor in the designation was litigation and the litigation is now over.

To get a loan for a non-warrantable condo, look for lenders who provide portfolio loans instead of traditional mortgages. Usually, these feature a 30-year adjustable-rate mortgage with a 25 percent down payment required. If it's your third property, you need to put down 40 percent.

There are also rules even among lenders willing to provide mortgages for non-warrantable properties. For example, if you want to purchase a unit in a condotel, it may require your property to be a minimum of 500 square feet.

When is a Condo Warrantable?

Typically, both Freddie Mac and Fannie Mae consider a condo to be warrantable when it is:

  • Detached (shares no walls but still called a "condo")
  • Not owned by a single entity (two units per owner in 5-20 unit projects and no more than 20 percent in 21+ buildings)
  • Offers an owner-occupied rate of at least 50 percent (second homes also okay)
  • Not pending litigation (developer, homeowners association, etc.)
  • Made up of only 2-4 units

The FHA and VA publish a regularly updated list of approved living communities. Neither will back a mortgage for properties not on the approved lists. However, it is usually the case that the FHA and VA will authorize a loan for a property recommended by Freddie Mac or Fannie Mae.

In addition to providing lists of suitable developments, both the FHA and the VA provide an essential list of requirements to get a mortgage for a condo. These criteria include:

  • Meeting standard FHA guidelines (as with a single-family home)
  • Purchasing a unit in a project that currently is 70 percent sold
  • Buying in a project that is at least 50 percent owner-occupied

So how do you go about finding regular financing for a non-warrantable condo? Skip to the bottom if you are in a rush.

Tips for Securing Condos with Financing

Whether you buy a single-family home or a condo in downtown Seattle, the process always begins with extensive research.

However, unlike a standard single-family home, securing financing for a condo depends as much on the property itself as it does the lender.

As a result, your first task is to find a warrantable condo.

How to Find a Warrantable Condo

Your first step is to check out government lists of approved condos and work from there. This is particularly important if you want to buy using an FHA-backed mortgage program.

The U.S. Department of Housing and Urban Development offers a search function for FHA-approved condo projects.

All you need to do is enter Washington under "State" and your preferred county. If you want to look up a specific project, you can enter the name or project ID number, too.

However, if you are set on an FHA loan and you don't know your preferred project's status, it may be worth to start with the full list. Whittle down your choice down from there rather than hoping and praying the building you already love makes the list.

Freddie Mac and Fannie Mae don't publish a list of warrantable condos, but they do publish guidelines to help you shop. Click here for Freddie Mac's published guidelines and here for Fannie Mae.

Get Help from a Lawyer

If you are set on buying a condo, it may also be worthwhile to ask for legal help.

A real estate lawyer will be familiar with the laws surrounding condos. They will also help you avoid condos that come with risks, such as those wrapped up in litigation or those not legally established with state law.

Buying a condo in a project under litigation draws you into the lawsuit, even if you buy after the lawsuit began.

Real estate attorneys can also give you advice on Home Owner's Associations (HOAs), which can be your best friend or worst enemy. Their litigation history should be just as important as the amenities the property offers.

Failing to hire a real estate lawyer when you buy your first condo often winds up being "penny-wise but dollar-foolish".

How to Get Your Condo Approved

Condo financing happens in two steps. Your lender must approve the loan, but the government body you choose must also back the loan. It's rare for a lender to approve a loan that they can't get government backing from. After all, the FHA, VA, Fannie Mae, and Freddie Mac provide insurance for the lender in case the buyer defaults.

And because condo projects are trickier than single-family homes, lenders rely heavily on the government's commitment to the project.

Start with a Condo Questionnaire

When you find a lender willing to finance a condo, be sure to start the process with the condo questionnaire. The condo questionnaire determines whether a condo is non-warrantable, which better prepares you and the loan officer to deal with the consequences.

The questionnaire may be free or as much as $250 to complete. Because being warrantable makes such a significant difference in the lending process, it can stop the deal in its tracks or give it the green light.

There's no need to spend over $500 on an appraisal for a property that you later find is non-warrantable.

Some agencies may encourage you to wait until the end or even describe it as their policy. The risk of waiting is that you can complete the appraisal, underwriting, and come within days of closing before hearing that the condo is non-warrantable and Freddie Mac won't back the loan.

Get the Paperwork Right

Second, be sure you get all the right paperwork to the lender right away. When you use an FHA or VA loan, you work with a published approval list that requires you to submit construction plans, homeowners association documentation, and other guidelines. Your real estate lawyer is a critical ally during this stage of the process.

Condos are Tricky - Work with an Expert

Condos tend to be more affordable, provide luxe amenities, and of course, offer shiny new downtown locations. Financing a condo, on the other hand, isn't easy.

You can't use a first-time homebuyer program to finance a non-warrantable condo. In fact, you will struggle to get any financing at all. That's why it's essential to do your research early and enlist the help of both a real estate attorney and agent.

Are you ready to make the leap and become a homeowner in Seattle? Get in touch to learn more about financing your Seattle home.

If you have 10% or more to put as your down payment and want to buy a non-warrantable condo, we offer conforming, Fannie Mae and Freddie Mac mortgages (the type of financing with the good rates [we’re not allowed to say “best rates” or else we would have]).


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