Condos are an important part of the housing market.
In some of the nation’s hottest markets, such as Miami and San Diego, condos are the property of choice for buyers.What’s more, as a nationwide affordability squeeze challenges homebuyers, condos offer an affordable alternative. In Florida, for instance, the median price of condos and townhomes sold in April was $325,000, well below the $410,000 median price for single-family homes, according to the Florida Realtors.
Warrantable Vs. Non-Warrantable Condos Loans
A warrantable condo is a unit that a buyer can finance with a conforming mortgage. To meet the definition of a warrantable condo, the unit must fit the parameters 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 owned 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 don’t conform to those guidelines. Fannie and Freddie consider a condo non-warrantable if it has any of these characteristics:
- The homeowners association or condo association is named as a defendant in an active lawsuit.
- The building operates as a hotel, motel, or timeshare, also known as a condotel.
- More than 15% of the total condo units are 60 days or more delinquent, or behind, on their homeowners’ association dues.
As you can see, the rules don’t fully capture the underlying safety and soundness of the condo in question, either structurally or financially. In many cases, non-warrantable condos are simply different.
The strict rules imposed by Fannie and Freddie have made financing a non-warrantable condo more difficult, creating opportunities for non-agency lenders. As a result, private lenders can provide value to a number of highly creditworthy borrowers. We find that many of our condo borrowers have high credit scores and hefty assets. While many could pay cash for their condos, they prefer to finance their purchases.
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, condo association reserve levels, and the presence of short-term rentals.
If conforming lenders say no to your condo deals, LendSure looks for ways to say yes. For example, rather than dismissing buildings with lawsuits out of hand, LendSure digs into the details of pending litigation. We’re also willing to lend on condos where up to 90% of units are investor-owned.
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 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.