If you are looking to purchase a condo, it is important to understand that not all condos are created equal. Aside from location, size, amenities and how you plan to use it, condos can vary greatly, and this includes whether or not it is warrantable. But what is the difference between a warrantable condo and non-warrantable condo?

non-warrantable condo loans

What is a non-warrantable condo?

In simple terms, non-warrantable condos are condominium complexes that do not meet the typical eligibility criteria set by major government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac. There are several factors that contribute to a condo being classified as non-warrantable. These can range from the occupation percentage or even for legal reasons.

Elevated Investor Ownership: When a substantial proportion of units within a condominium complex is owned by investors rather than primary residents, concerns may arise regarding community stability and financial viability, leading to the classification of the property as non-warrantable.

Pending Legal Issues: Condominium associations embroiled in unresolved legal disputes or facing ongoing litigation may be deemed non-warrantable due to the potential financial uncertainties and liabilities associated with such situations.

Inadequate Reserves: Insufficient financial reserves within the condominium association signal a lack of preparedness to address unforeseen expenses or maintenance issues, rendering the property non-warrantable in the eyes of lenders.

Commercial Space Utilization: The presence of commercial units or mixed-use spaces within a condominium complex can complicate financing and ownership structures, contributing to non-warrantable status.

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How do you qualify for a non-warrantable condo?

Qualifying for financing for non-warrantable condos entails meeting certain criteria that differ from those for conventional loans. Here’s what lenders typically look at:

Good Credit: These loans typically require a higher credit score compared to regular conventional loans. 680 is required along with a strong credit history, you may qualify for a lower interest rate with a higher score This can result in lower monthly payments and potentially lower overall costs over the life of the loan.

Income Verification: Buyers must provide evidence of stable income to demonstrate their capacity to meet mortgage payments and other financial obligations. As a lender we require the buyer’s debt-to-income ratio to be 43% or less in order to assess their ability to manage additional debt.

Down Payment: Non-warrantable condos often require larger down payments compared to conventional loans to mitigate the lender’s risk. Buyers need a 20% down payment to secure financing for these properties.

Cash Reserves: Liquid cash reserves are required after down payment, of 6 months often expressed as the number of months’ worth of mortgage payments you should have saved.

What are some requirements for getting a non-warrantable condo loan?

Securing financing for non-warrantable condos means exploring different options. Here are some financing requirements and strategies to consider:

Specialized Lenders: Buyers can seek financing from specialized lenders who offer non-conforming loan products tailored to non-warrantable condos. These lenders may have more flexible underwriting criteria and a deeper understanding of the unique challenges associated with these properties.

Portfolio Loans: Portfolio lenders, including local banks and credit unions, may extend portfolio loan programs that offer greater flexibility in underwriting criteria. These loans are typically retained in the lender’s portfolio rather than sold on the secondary market, enabling more personalized financing solutions.

Higher Interest Rates: Due to the heightened risk associated with non-warrantable condos, borrowers may encounter higher interest rates compared to conventional mortgages. It is essential for buyers to carefully assess the long-term costs and benefits of financing options to make informed decisions.

Consultation with Real Estate Professionals: Collaborating with experienced real estate agents, mortgage brokers, and attorneys can provide invaluable guidance and insights throughout the purchasing process. These professionals possess the expertise to navigate the intricacies of non-warrantable condos and identify suitable financing solutions tailored to the buyer’s needs and circumstances.

Is a non-warrantable condo loan a good idea?

Non-warrantable condos represent a unique segment of the real estate market, offering both challenges and opportunities for potential buyers. Understanding the qualification essentials and financing requirements associated with these properties is paramount for making informed decisions and mitigating any risks. By assessing your financial readiness, exploring alternative financing options, and leveraging the expertise of seasoned professionals, you can easily navigate the seemingly complex process of getting non-warrantable condo loan.

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