What is a Non-Warrantable Condo and Why is it Difficult to Finance?

What is a non-warrantable condo and why is it difficult to finance? A non-warrantable condo is a condominium that does not meet the minimum eligibility standards set by FHA, Fannie Mae or Freddie Mac. These agencies will not insure/purchase mortgages secured by non warrantable condos because they are considered riskier.  As a result, the down payment and interest rates on these loans are higher than that of a regular loan. To determine if a condo is warrantable or non warrantable, a condo questionnaire must be completed by the HOA.

For the project to be considered warrantable, at least 51% of the total units in the project must be owned as principal residences or second homes. Moreover, there must not be any current or pending litigation, no one owner can own more than 10% of the units and the projects annual budget must have a minimum of 10% reserves.  Additionally, no more than 15% of the current unit owners, can be more than one month delinquent in payment of homeowners dues or assessments

Finding financing on non warrantable condos can be challenging because of those select lenders that offer loans, most will have restrictions on the area they lend in and/or the loan amount. Therefore, if you are looking to purchase a condo, make sure to ask upfront if it is warrantable.  Further, once you talk to a lender, give the exact property address and sales price.  Just because a lender offer financing on non warrantable condos, doesn’t mean all condos and all sales prices are financeable.  Many limit financing based on condo location and/or have a minimum loan amount.  Knowing these things in advanced will save you a lot of time and headache.