When looking to purchase a condo you will find during the lending process that condos are classified by two types. One is called a warrantable condo and the other is a non warrantable condo.
The difference all boils down to two words. Risk Factor.
If a condo is considered non-warrantable, it means the lender feels like the condo is at high risk.
At risk for what exactly?
Unlike a home purchase, when you purchase a condo, the risk factor is NOT based solely on the fact that the entire home is owned and occupied by you. There IS assumed risk. The owner of a condo can not be held responsible for the entire building with multiple units where the safety and well being of all owners is taken into consideration. The HOA is also an important factor. Here are a few more factors that may cause a condo to be labeled non warrantable.
The answer is yes. Because of the perceived risky nature of non-warrantable condos, it’s a little more challenging to finance them. I always say Rate=Risk. You might find you need what’s called a non-qualified mortgage. This type of loan is a pre-crash term loan.
Non-QM Loans (Qualified Mortgage) loans may:
As an experienced professional mortgage broker, I can help you navigate through the condo financing confusion. It is my goal to look out for your best interest. Depending on what makes the community non-warrantable you might be able to buy a condo that is non-warrantable with conventional financing.
This option is available when the owner-occupied, second home vs. investor ratios are off if the buyer puts down certain down payment percentages. For Owner Occupied Condo purchases the buyer would need 10% down, for second homes and investors purchases the down payment would need to be 25%
In simple terms a condo that is warrantable is easier to finance because there is a lower risk factor for the bank. A warrantable condo can typically get you a lower mortgage rate vs a non-warrantable condo.
You will have financing options that are similar to conventional loans.
A warrantable condo is conventional. This condo qualifies for conventional, FHA, or VA loans. Conventional loans which are backed by Fannie Mae or Freddie Mac are in conservatorship to keep them out of trouble but they are not usually government backed. FHA and VA must be approved by FHA or VA and are backed by the government.
FHA loans have a different set of guidelines for condos and they allow for a complex/HOA to be approved for 3 years before needing to renew and update their condo data. This occurred after the mortgage meltdown where previously FHA approved condos were approved for a lifetime. This recertification process allows for lenders to ensure that the condo and association are still in good fiscal condition. Working with a Broker means less red tape and easier qualifications.
Many of the requirements are the same with conventional loans.
FHA does allow spot approvals for one unit in a project but this can add delays to the closing process as the condo must be approved before closing.
Condominiums The Condominiums page allows users to search for FHA-approved condominium projects by location, name, or status. These properties are not for sale by the FHA. entp.hud.gov
The VA also requires condo projects to be approved. The VA generally follows FHA guidelines but once a project is approved it is approved for a lifetime. To look up VA approved condos go to: https://lgy.va.gov/lgyhub/condo-report
Request a Customized Condo Report - Loan Guaranty
The .gov means it’s official. Federal government websites often end in .gov or .mil. Before sharing sensitive information, make sure you're on a federal government site. lgy.va.gov
When looking up FHA and VA condos it is best to look up by zip code, county and state. Many times the name of the condo association can vary from what is the known name and what was reported to FHA and VA.
A condo can be a great investment opportunity. You just need to know what to look for and the guidelines for each situation you may encounter.
If you’re ready to purchase a condo or if you are just interested in preparing, give me a call! I’d love to chat with you about your specific situation and explain your options. It would be my pleasure to get you the best financing on a condo purchase.
I will be there and guide you through the loan process when you’re ready. Reach out to me at 480-313-7103 or by emailing firstname.lastname@example.org.