If you are in an area that has a large concentration of condominiums, you may have heard the term “Non Warrantable Condo”. So what exactly does this mean?
A “Non Warrantable Condo” is one in which the loan can’t be sold to Fannie Mae or Freddie Mac.
Below are some reasons why projects might not be eligible for sale to Fannie Mae or Freddie Mac
- The project is managed and operated as a hotel or motel (condotel)
- Projects that include registration services and offer rental on a daily basis
- Projects that restrict the owners ability to occupy the unit
- Projects with mandatory rental pooling agreements that limit the ability for the owner to occupy the unit
- Projects that have documents on file with the Securities and Exchange Commission and unit ownership is considered an investment security
- Projects where greater than 20% of the building’s square footage is used for Commercial Use
- Projects where a single entity (individual, investor group, partnership, or corporation) owns more than 10% of the total units in the project. Units owned by the developer that are vacant and are listed for sale are excluded from the 10% rule.
- Projects that allow owners to have stock ownership in more than one dwelling unit
- Condo Projects that have pending litigation that relates to the safety, structural soundness and project use of the condo project. Projects with litigation for minor matters are not ineligible/non warrantable. Documentation required for pending litigation to prove warrantability.
- The common elements are not complete.
- More than 15% of the assessments are delinquent
- Less than 10% of the budget for reserves (some exceptions granted)
The list is long and this is not all inclusive, but generally the above could make the condo you are purchasing non warrantable.
I still want to purchase the condo. What should I do?
Find a lender that has access to non warrantable condo loans. Most non warrantable loans are reviewed on a case to case basis.
Generally you will find:
- No presale requirements
- 50% owner occupancy is allowed
- Conversions ok
- Association not turned over ok
- Commercial square footage greater than 20%
- Small projects ok
- Pending Litigation on a case by case basis
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