What Makes A Condo Non-Warrantable
When it comes to buying a condo, knowing what makes a condo non-warrantable is an important part of the process. A non-warrantable condo is a property that does not meet the requirements for certain types of financing, such as a conventional loan. This can impact your ability to obtain a mortgage or even the interest rate you receive.
Let’s discuss the factors that can make a condo non-warrantable and what that means for potential buyers.
What Is a Non-Warrantable Condo?
A non-warrantable condo does not meet the eligibility requirements set by government-sponsored enterprises like Fannie Mae and Freddie Mac.
These agencies set guidelines that many lenders follow when offering loans for condos. If a condo does not meet these guidelines, it becomes non-warrantable. This makes it more difficult to secure traditional financing.
Factors That Make a Condo Non-Warrantable
High Percentage of Units in the Building Are Rented
One of the most common reasons a condo is non-warrantable is when a large percentage of the units in the building are rented out to tenants.
Lenders prefer that a majority of the units are owner-occupied because it indicates stability in the building’s financial health. If too many units are rented, lenders may see the building as a higher risk. This is why it may not meet financing requirements.
Ongoing Litigation
If a condo association is involved in ongoing litigation, the property may be considered non-warrantable. Litigation can indicate underlying issues with the building, such as structural problems, financial instability, or disputes among unit owners.
Lenders may be hesitant to deliver financing for properties with active lawsuits because these issues could affect the value and marketability of the condo.
Low Reserves in the Condo Association
A condo association needs to maintain adequate reserve funds to handle future repairs and maintenance. If a condo association has low or no reserves, it can be a red flag for lenders.
Insufficient reserve funds can indicate that the building is not financially stable and may have trouble funding future repairs or addressing unexpected issues. Without proper reserves, the condo is more likely to be deemed non-warrantable.
Condo Building Is Too New
Some new condos may not meet the requirements for traditional financing. For example, the building may not have been established long enough to show financial stability.
Some lenders prefer that a condo has been occupied for at least a year or two before offering financing. This requirement helps make sure that the building has a proven track record and is less likely to encounter unforeseen issues.
High Commercial Space Ratio
Condos that have a large portion of the building designated for commercial use are often considered non-warrantable. Lenders may be cautious about properties where commercial tenants make up a significant portion of the building.
Commercial tenants can create instability, especially if the business fails or the commercial spaces remain vacant. Condos with too much commercial space can present a higher risk to lenders.
Condo Is Part of a Co-Op
Cooperative housing (co-op) arrangements are different from traditional condominiums. In a co-op, you do not own the unit directly; instead, you own shares in the corporation that owns the building.
Because of this unique ownership structure, co-ops are often considered non-warrantable. Most traditional lenders will not offer loans for co-ops. This makes it more difficult to obtain financing.
Condo Does Not Meet FHA or VA Guidelines
For condos to qualify for Federal Housing Administration (FHA) or Veterans Affairs (VA) financing, they must meet specific requirements.
If a condo does not meet these guidelines, it may not be eligible for FHA or VA loans–making it non-warrantable. These guidelines include things like the percentage of owner-occupied units and the financial health of the condo association.
How to Deal with Non-Warrantable Condos
If you are interested in purchasing a non-warrantable condo, you still have options. You may be able to secure financing through alternative lenders who specialize in non-warrantable properties. These loans typically come with higher interest rates and stricter terms. However, they allow you to move forward with your purchase.
Before making any decisions, it is a good idea to speak with a real estate agent or mortgage lender to understand your financing options. They can guide you through the process and help you find the best solution for your situation.
How Stone Building Solutions Can Help
Understanding what makes a condo non-warrantable is an important part of the condo-buying process. Several factors can affect a condo’s eligibility for traditional financing, including rental ratios, ongoing litigation, and financial stability.
Stone Building Solutions provides expert support to help you navigate the complexities of condo ownership. We offer property assessments, structural inspections, and evaluations to make sure your building meets safety and financial standards.
If you need assistance with evaluations or risk assessments, reach out to us today. We provide the insights you need to make informed and confident property decisions.