Warrantable Vs. Non Warrantable Condos

NOTE:  Regency Mortgage offers financing for Non-Warrantable Condos in New Hampshire & Maine only.

Warrantable vs. Non Warrantable Condos

You may have heard the term Warrantable or Non Warrantable condo.  Some are confused as to what this means and what constitutes a Warrantable condo vs. a Non Warrantable condo.  A Warrantable condo simply means that the condominium project in question is eligible to be sold to Fannie Mae or Freddie Mac.  A Non Warrantable condo is not eligible to be sold to Fannie Mae or Freddie Mac.  Therefore most mortgage lenders will not lend on a Non Warrantable condo.  However, some lenders do – Including Regency Mortgage Corp.  But because Fannie and Freddie will not purchase mortgages secured by Non Warrantable condos, they are considered to be more risky, and thus the interest rate and down payment are typically higher.

What issues would cause a condo project to be considered Non Warrantable?  There are a variety of issues that may cause a condo project to be considered Non Warrantable.  For example, a project that has hotel –like characteristics (condo hotel) would be considered Non Warrantable.  Or a project where one person/entity owns more than 10% of the total units would also be considered Non Warrantable.   These are only two examples of a Non Warrantable condo.

In more general terms, Non Warrantable Condos are those projects that DO NOT fit into one of the following three classes:

CLASS I

1. Developers control of the homeowners association has been turned over to the condo owners
2. Project is not subject to additional phasing or add-ons which have not yet been completed
3. All common elements and amenities must be fully installed, completed and in operation
4. 70% of all units in the entire development must have been sold and or legally obligated to close
5. 70% of all units in the entire development must have been sold to owner occupants

CLASS II

1. Recent or current condominium conversions (from apartments)
2. Homeowners association has been controlled by the unit owners (other than the developer) for less than two years
3. Project is not subject to phasing or add-ons which have not yet been completed
4. All common elements and amenities are fully installed, completed and in operation
5. 70% of the units in the entire development must have been sold and/or legally obligated to close
6. 70% of the units in the entire development must have been sold to owner occupants
7. No more than 15% of the current unit owners are more than one month delinquent in payment of homeowners dues or assessments

CLASS III

1. Homeowners Association has been controlled by unit owners (other than developer) for at least one year
2. Project is not subject to phasing or add-ons
3. All common amenities are fully installed, completed, and in operation
4. 90% of the units have been sold (owner-occupancy of at least 60%)

How do you determine if a condo project is considered Warrantable or Non Warrantable?

A CONDO QUESTIONNAIRE MUST BE COMPLETED BY THE MANAGEMENT COMPANY AND SUBMITTED TO THE LENDER ALONG WITH THE FOLLOWING:

Master Deed .

By-laws, and Budget.

Master Insurance (Sufficient Fidelity bond coverage required if over 20 units).

Articles of Incorporation if the HOA is incorporated.

To determine project eligibility, all of the above items need to be reviewed by the lender.  If any of the items above are missing or if supporting documentation is needed, this could add to the time it takes to complete the transaction.  Therefore, it is CRUCIAL to gather and submit all of the above information to the lender AS SOON AS POSSIBLE so that any potential red flags can be identified and addressed early on.  There is nothing worse than receiving one or more of the above items late in the process only to find out there are issues with the project that need to be addressed.  This may cause unnecessary delay and require extensions of closing and commitment dates.

Condominium financing is definitely more challenging in today’s market.  Therefore it is important to work with a lender who thoroughly understands these challenges.  I’m happy to say that I have been providing condominium financing for my clients for over 10 years and understand what it takes to orchestrate the processing and underwriting of such a transaction.  The underwriting department at Regency Mortgage Corp. is staffed with veteran underwriting professionals who are experts at condominium financing.  We work closely with both the buyers and Real Estate agents to make sure the process is as seamless as possible and that all deadlines are met.

Remember, I offer…

  • Financing on 2nd home condos with as little as 10% down!
  • Financing for Non-Warrantable condos!
  • Free pre-approvals!
  • Efficient and professional service!

Don’t forget to visit my blog to read other informative posts, market updates, and current mortgage rates.  Simply click this link:  www.eharrigan.wordpress.com

If you have a buyer who is looking to purchase a condominium, please have them call me.  You and your client will be glad you did!

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2 Comments on “Warrantable Vs. Non Warrantable Condos”

  1. Mary Rita Luecke Says:

    Do you have any suggestions for financing the purchase of a nonwarrantable condo? My daughter has a contract to purchase a unit that fits into Category III. Her initial bank has refused to approve that mortgage application.


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