What's the difference between a warrantable & non warrantable condo?

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Mortgage and Lending with Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, NMLS #138061 MMCD #1141
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What's the difference betwen a warrantable & non warrantable condo?

 

 

 

     This post is part 1 of a short series of blog posts on condominium financing.  Recently, I've had many inquiries about financing programs for condos, condotels, and non-warrantable condos, and along the way I've found there's a lack of education on the subject.

 

 

 

 

Condo loans

     To begin, it's important to understand what a 'condominium' is.  It is not actually a type of building or property, but a legal definition of the way certain real estate is owned.  This explains why sometimes a townhome is considered a condo, but the exact same look/style home may be considered a "single family attached" property instead of a townhome.  In a condominium, generally an owner owns the interior of their unit, and has joint ownership of common grounds, recreational areas, and infrastructure, with the other members of the community.

 

 

     When it comes to mortgage financing, condos are (very) generally separated into 2 classifications - warrantable & non-warrantable condos.

 

 

     A "warrantable" condo is simply a condominium that is eligible for financing that can be sold directly to Fannie Mae and/or Freddie Mac.  Loans for warrantable condos follow conventional underwriting guidelines.  Most lenders lend freely on warrantable condos, with rates and programs comparable to those found available for single family homes.

 

 

     With "non warrantable" condos, things can get a little more tricky.   Since a non-warrantable condo is not eligible for financing that can be sold to Fannie Mae or Freddie Mac, many lenders consider them a higher risk.  Some lenders won't lend on non-warrantable communities at all, while others will offer funds, but only with larger down payments and/or higher interest rates than those seen for warrantable projects.  The good news is, financing IS available for non-warrantable condos, and the rates don't have to be terrible. 

 

 

     A condo can be considered non-warrantable for many reasons, including unfinished phases, too high a percentage of investment ownership, a single owner owning too large a percentage of the community, and many other reasons that I'll get into more detail about in a future post.  The best way to determine whether a condo is warrantable or non-warrantable is to have the builder or homeowners association complete a "condo questionnaire".  This form asks many questions that are used to determine a condo's eligibility for conventional financing, and is required for condo loans for both conventional loans and portfolio lending products.

 

 

Have a question about condo financing?  Ask an expert here!

Curious about mortgage rates for warrantable VS non-warrantable condos?  Check out current rates here.

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Lanre-"THE REAL ESTATE FARMER" Folayan 08/09/2014 11:22 AM
  2. Tamir Ness 08/11/2014 06:19 AM
Topic:
Lending / Financial
Groups:
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All About Mortgages/Mortgage Networking
Southern California Real Estate Forum
Orange County Real Estate
The Philadelphia Real Estate Network
Tags:
condo financing
buying a condo
condo mortgage
what is a condo
condo home loans

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Ambassador
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

It would help if listing agents would enter their condo listings accurately in the MLS.

Aug 09, 2014 09:16 PM #14
Rainmaker
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Kat Palmiotti
Grand Lux Realty, Monroe NY, 914-419-0270, kat@thehousekat.com - Monroe, NY
The House Kat

Excellent overview of what a condo is and what the warrantable status means.

I agree with Lenn about entering listings correctly.  There will be several listings in the same complex - some are listed as condos and some as single family homes.

Aug 09, 2014 09:44 PM #15
Rainmaker
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Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

John sharing his savvy in his arena of practice...good job John

Aug 09, 2014 11:10 PM #16
Rainer
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Geoff ONeill
John L. Scott Medford - Medford, OR

Non warrantable is even more of an issue when it comes to value.  Great explaination on the differences.

Aug 09, 2014 11:15 PM #17
Rainmaker
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Sheila Anderson
Referral Group Incorporated - East Brunswick, NJ
The Real Estate Whisperer Who Listens 732-715-1133

Good morning John. What an excellent and informative post. Very nicely done.

Aug 09, 2014 11:36 PM #18
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Norma Toering Broker for Palos Verdes and Beach Cities
Charlemagne International Properties - Rancho Palos Verdes, CA
Palos Verdes Luxury Homes in L.A.

John - I recently had a client interested in purchasing a condotel--she was surprised to learn a 40% down payment was required.  Great explanation.

Aug 10, 2014 12:46 AM #19
Rainmaker
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Bill Reddington
Re/max Southern Realty - Destin, FL
Destin Florida Real Estate

Deal with lots of condotels in this area now. Right now Compass Bank has some great condo financing here locally. You may have it California also.

Aug 10, 2014 06:30 AM #20
Rainmaker
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Sybil Campbell
Long and Foster REALTORS® 5234 Monticello Ave Williamsburg, Virginia - Williamsburg, VA
REALTOR® ABR, SFR, SRES Williamsburg, Virginia

John, that's very valuable information for people things of buying a condo.

Aug 10, 2014 06:48 AM #21
Rainmaker
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Sandy Padula and Norm Padula, JD, GRI
Realty National & Geneva Financial, Llc. - Carlsbad, CA
Presence, Persistence & Perseverance

John: I have to believe that most of us 'seasoned' agents have encountered non-warrantable condos in the past and it is one of the primary questions I ask before scheduling a showing for one of my buyers. Thanks for sharing!

Aug 10, 2014 09:12 AM #22
Rainmaker
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Pete Xavier
Investments to Luxury - Pacific Palisades, CA
Outstanding Agent Referrals-Nationwide

Great explanation of these uncommon terms to the layman outside of mortgage finance.

Aug 10, 2014 11:53 AM #23
Rainer
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Suzanne Otto
Six Twenty Designs - Lansdale, PA
Your Montgomery County PA home stager

Very well explained John! Definitely some important information for buyers to know. 

Aug 10, 2014 10:52 PM #24
Rainmaker
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Jon Kolsky
Kolsky Realty & Management - Long Beach, CA
Licensed California Real Estate Broker

John Meussner ~ this kind of info is ultra important to understand... You have nailed it completely! It's easy to see why you are making a difference and why clients are lucky that work with you

Aug 11, 2014 02:01 AM #25
Rainmaker
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Kevin Mackessy
Blue Olive Properties, LLC - Highlands Ranch, CO
Dedicated. Qualified. Local.

Good concise explanation of the two terms.  Some of these things you only learn about when you encounter them.  We discovered a new non-warrantable condo problem just recently when the HOA of the complex decided to not put any money in the reserves from their yearly budget and then fudge the condo cert when we ordered it! 

Aug 11, 2014 04:47 AM #26
Rainmaker
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Jeff Jensen
The Federal Savings Bank/Lending in 50 states - Greenwich, CT

It is important that agents are aware of the ramifications of unwarrantable condos.

Aug 11, 2014 07:58 AM #27
Rainer
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Whitney Watson
First Heritage Mortgage - Henrico, VA

John Meussner I'm dealing with several condos right now!  Great explanation!

Aug 11, 2014 11:29 AM #28
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Belinda Spillman
Aspen Lane Real Estate Colorful Colorado - Aurora, CO
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John,  Great explanation.  So many people (Realtors included) are confused about this designation.

Aug 12, 2014 02:31 AM #29
Rainmaker
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Jane Peters
Home Jane Realty - Los Angeles, CA
Los Angeles real estate concierge services

This is great information on condo financing. It is always good to know the situation before finding out that you will not be able to get a mortage.

Aug 13, 2014 09:52 AM #30
Rainer
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Holly Biltz
Berkshire Hathaway HomeServices Results Realty - Saint Cloud, FL

Interestting I have been in the business 9 years and never came across this.

Aug 13, 2014 11:23 PM #31
Rainmaker
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Hella M. Rothwell, Broker/Realtor®
Carmel by the Sea, CA
Rothwell Realty Inc. CA#01968433 Carmel-by-the-Sea

John Meussner - Good to know for agents even before they go out to show property. Their buyer might not qualify just with the down payment amount.

Sep 22, 2014 03:45 AM #32
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John Meussner
Mason-McDuffie Mortgage, Conventional Loans, Jumbo Loans, FHA, 203(k), USDA, VA, - Walnut Creek, CA
#MortgageMadeEasy Walnut Creek, CA 484-680-4852

Hella M. Rothwell that's very true.  Agents make life easy on themselves by learning about the different condo's available in their location, too.  Knowing whether a buyer will need 30%+ down VS the standard 5% can eliminate a lot of unnecessary showings and time wasted.

Sep 22, 2014 04:51 AM #33
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John Meussner

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