NON-WARRENTABLE CONDOS

When a condo is labeled as non-warrantable, it means that it does not meet conventional guidelines and will not be bought by government-backed entities like Fannie Mae and Freddie Mac. Many lenders consider financing a mortgage for this type of property to be too risky which can make it harder to finance.

Some companies may have their own guidelines as to what is considered warrantable or not, but the most common reasons for a condo to get flagged include:

1.The project is new construction and/or has yet to be completed (Presale Fannie and Freddie require 51% of the building to be owner occupied and sold)

2. The developer has not turned over control of the HOA to the owners (if 70% of the building is already sold)

3. The budget does not include a 10% line item required by Fannie and Freddie for reserve funds in the operating budget for a project to be warrantable.

4. A high percentage of units are occupied by non-owners.

5. The community allows short-term rentals.

6. A single person or entity owns more than 10% of the total number of units.

7. The building owner or developer is involved in litigation due to health or safety issues with the project and/or liability not covered by the building or developers insurance.

8. If the project is a condo hotel.

9. If there is a large percentage of commercial square footage (mixed use).

FHA and VA loans will have their own unique guidelines as well. Since non-warrantable buildings are seen as a larger risk, expect the terms of any loan to be less favorable to the borrower including increased interest rates or larger down payment requirements.