What Is a Warrantable Condo and Why Does It Matter?
When purchasing a condo, one of the key considerations is whether the property is warrantable. This designation is important because it determines how easily the condo can be financed, the types of loans available, and the overall investment potential.
Knowing the requirements for a warrantable condo can save time and make sure you are making a sound financial decision.
Characteristics of a Warrantable Condo
A warrantable condo is defined by specific criteria set by mortgage lenders and government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac.
These guidelines include factors such as the financial stability of the condo association, the percentage of owner-occupied units, and the condition of the property. A condo that meets these requirements is considered “warrantable” and is eligible for financing through conventional loans.
The condo must have a certain level of owner-occupancy—typically at least 50% of the units must be occupied by owners rather than tenants or investors. This is important because owner-occupied units contribute to a more stable and financially secure environment for the condo association.
High investor concentration occurs when more than 50% of the units are owned by investors. This can make a condo non-warrantable, as lenders consider it a higher risk.
Why Does a Warrantable Condo Matter?
The designation of a warrantable condo has a significant impact on financing options. Conventional loans, which typically have lower interest rates and better terms, are only available for warrantable condos. Non-warrantable condos may be more difficult to finance. They often require buyers to seek alternative lenders or specialty loan programs with higher interest rates.
A warrantable condo also offers more stability in terms of resale value. Because these properties are eligible for conventional financing, they have a larger pool of potential buyers. This makes it easier to sell the property later.
Non-warrantable condos, on the other hand, can be more difficult to sell, as fewer buyers are able to secure financing.
Warrantable vs. Non-Warrantable Condos
In contrast, non-warrantable condos are properties that do not meet the standards set by Fannie Mae and Freddie Mac. These condos may have high investor concentrations, ongoing litigation, or operational issues within the condo association.
While non-warrantable condos can sometimes be purchased with specialized loans, they generally come with higher interest rates and stricter lending requirements.
Warrantable condos offer clear advantages for buyers. They typically have fewer financing restrictions, lower interest rates, and greater potential for appreciation. The stability of a warrantable condo, combined with easier financing, makes it a more attractive investment for most buyers.
How Warrantable Condos Affect Financing Options
When buying a condo, it is important to determine whether the property qualifies as warrantable. A warrantable condo can be financed through various loan programs, including conventional, FHA, and VA loans.
Eligibility also depends on factors like credit score and down payment. These loans typically have lower interest rates and more favorable terms than loans for non-warrantable condos.
In addition to loan eligibility, warrantable condos have a better chance of securing lower insurance premiums. They are considered less risky investments–making coverage more affordable. Buyers of non-warrantable condos may face higher insurance costs and limited availability of insurance options.
How Stone Building Solutions Can Help
Stone Building Solutions understands the importance of making sure that your property is structurally sound and well-managed. Our structural assessments and construction monitoring services help identify any issues with a condo’s condition.
If you are dealing with insurance claims related to your property, our experienced public adjusters can guide you through the claims process. Contact us for more.