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Non-QM 101: Non Warrantable Condos

February 8, 2023
Learn how LendSure's Non-QM loans enable borrowers to apply for Non-warrantable condos approvals that are rejected by other agencies.

Condos represent a crucial part of the U.S. housing market. Nationally, an estimated 175,000 condo associations oversee millions of individual condo units, according to the Community Association Institute.

As housing affordability continues to challenge homebuyers, condos act as an important pressure valve. Condos and townhouses are generally less expensive than single-family homes, and that makes them an attractive option for first-time buyers.

There’s a catch, though: Getting a mortgage for a condo can be quite challenging. Onerous rules from agency lenders create obstacles for borrowers – and many buyers simply opt to pay cash for their units.

But it doesn’t have to be that way. LendSure can provide a simplified approach and ample funding opportunities for mortgages on condo units. We pride ourselves on being a flexible lender, one that qualifies borrowers based on common sense rather than rigid rules. The latest condo guidelines from Fannie Mae and Freddie Mac, introduced in early 2022 to address structural integrity of condo buildings, caused upheaval in the condo market.

If you have a borrower whose conforming deal has been rejected or stalled because of the agencies’ strict rules, we can help. LendSure’s common-sense rules allow for approvals of condo units that the agencies reject, including condotels.

Warrantable Vs. Non Warrantable Condos

What is a non warrantable condo? We’re here to help walk you through the details.

A warrantable condo is a unit that a buyer is able finance with a conforming mortgage. To meet the definition of a warrantable condo, the unit has to fall under the guidelines set by Fannie Mae and Freddie Mac. The agencies have a long list of rules about what types of condos they’ll finance, but the general guidelines say:

  • Warrantable condos must be dominated by single-unit owners. To qualify as warrantable, a condo building with five to 20 units can have no single entity holding the deed to more than two units. For larger buildings, no more than 20% of units can be controlled by one owner.
  • Warrantable condos must have mostly owner-occupants. Agency rules say that at least half of the units must be owner-occupied, either as primary residences or second homes.
  • Warrantable condos must be financially sound. At least 10% of the budget is devoted to reserves, a set-aside fund for building maintenance and repairs.
  • Mixed-use buildings aren’t eligible. Commercial spaces must not exceed 35% of the condo building’s overall square footage.

Non warrantable condos, by contrast, are those that run afoul of those rules. Fannie and Freddie also consider a condo non-warrantable if it raises any of these red flags:

  • The homeowners association or condo association is named as a defendant in an active lawsuit.
  • The condo building includes manufactured homes.
  • More than 15% of the total condo units are 60 days or more delinquent, or behind, on their HOA dues.

As you can see, the rules are fairly straightforward – they don’t fully capture the underlying safety and soundness of the condo in question, either structurally or financially.

In many cases, though, non-warrantable condos are simply different. For instance, condotels can be quite profitable investments, as can units in buildings where more than half of the units are owned by investors.

These rules typically make financing a non-warrantable condo more difficult – but that’s where LendSure comes in. The strict rules imposed by Fannie and Freddie have created opportunities for non-agency lenders. We use more flexible, common-sense guidelines than those imposed by government-sponsored entities. As a result, private lenders are able to do business with a number of highly creditworthy borrowers. We find that many of our condo borrowers have high credit scores and hefty assets. Many could pay cash for their condos but prefer to use someone else’s money.

That’s why private lenders offer a type of product known as a non-warrantable condo loan. These mortgages are available to borrowers who find themselves locked out of Fannie and Freddie financing.

Non-warrantable condo loans come with less stringent underwriting requirements around such issues as non-owner occupancy and condo association reserve levels. Borrowers can expect to pay, on average, half a point to a point above the rate on conforming financing.

Non-warrantable condo loans don’t allow private lenders to say yes to every deal, of course, but specialty lenders are far more likely to approve condo loans than conforming lenders. For example, LendSure digs into the details of pending litigation and is willing to lend on condos where up to 90% of units are investor-owned.

As of early 2022, Fannie and Freddie stopped buying loans for condo units in buildings where major repairs have been put off, or where the condo association has been ordered by local authorities to remedy unsafe conditions. Of course, LendSure won’t finance units in structurally unsound buildings, but our common sense approach assures that we will review and consider individual complexes.

Are you ready to grow your business? Conforming loan approval guidelines can be restrictive, but we want to offer our mortgage broker partners the education, tools, support, and guidance they need in order to say “yes” to more of their clients.  This ensures happy borrowers and opportunities for bottom-line growth. What are you waiting for? Let’s get started!

Are you ready to benefit from a commonsense approach to lending?  Contact us today to learn more about non-QM loans and how partnering with LendSure Mortgage Corp. can help grow your bottom line.


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