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Non Warrantable Condo

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RK Mortgage Group is a leader in condo financing. Condominiums offer a lot of convenience and flexibility. They also have different mortgage requirements than a traditional home. That's why we offer very exclusive product options for condos, whether they meet Fannie Mae’s guidelines or not. Benefit from our experience in getting you the best condo financing at a lower rate.

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Did you find the condominium of your dreams but are having trouble qualifying for a conventional mortgage loan? Purchasing a condo isn’t much different than buying a single-family home with one exception, mortgage loans can be very hard to get. This is where non warrantable condo lenders can help get your real estate purchase application approved. Here are the basics you’ll need to know about unwarranted condo loans and how to go about finding lenders that offer this type of mortgage financing.

The Basics of Non-Warrantable Condos

What is a non-warrantable condo? Simply put a “Non- Warrantable” condo project does not meet the conventional loan guidelines set by Fannie Mae and Freddie Mac. In the single-family home lingo that you may already be familiar with these are known as “conforming” mortgage loans. 

You might be wondering if I can’t get qualified for conventional condo financing can I get approved through the FHA or VA for a government backed condominium loan? It is possible to get FHA and VA backed home loans to purchase your condo. FHA and VA loans are guaranteed by the Federal Housing Administration and the Department of Veterans Affairs.

Both the VA and FHA maintain lists of approved condo developments in all 50 states.  The VA and FHA will approve a condo loan if they appear on the approved condo list and meet all other program requirements. If your non-warrantable condo isn’t on the list your chances of getting approved for a government backed loan are pretty slim. 

Buying a condominium doesn’t just come down to your creditworthiness, income and assets. Lenders look at the finances and viability of the entire condo development in making a decision on your application. In bad economies this makes it even more difficult to qualify for conforming mortgage financing to buy a condo, especially for investment properties.

What Makes My Condo Non-Warrantable?

Many mortgage lenders have their own guidelines known as overlays for determining what is warrantable and non-warrantable.  Here are some of the most common reasons for having your dream condo flagged as non-warrantable:

  1. The project lacks sufficient insurance coverage.
  2. The development is being managed as a condo hotel or other commercial venture. 
  3. There is pending litigation against the development
  4. The development is new construction or under construction.
  5. There are too many units not occupied by their owners.
  6. There are too many units owned by a single person or entity.

The most frustrating thing about buying a condo is that you might not even find out that yours is non-warrantable until late in the mortgage process. Many lenders delay their condominium questionnaire and will even order an appraisal before making the determination. It’s even possible to make it completely through underwriting and then find out Fannie Mae or Freddie Mac determined the condo is non-warrantable. That’s the infuriating experience of buying a condo that puts my potential buyer off every applying for condominium loans again. 

How Do I Find Out If My Condo is Warrantable?

If you haven’t already been through the process with a lender and want to know if the condo you’re considering is warrantable there are steps you can take. First, check the Department of Housing and Urban Development website to see if your condo is in their database of warrantable condominiums. This database isn’t 100% reliable; however, your mortgage broker and listing agent also have resources to help answer the question of if the condo is warrantable. The database is updated frequently and often once you’ve secured non-warrantable financing your condominium will become warrantable and you’ll be able to refinance. 

What Do I Do If my Condo is Non-warrantable?

If you find out that your dream condo is indeed non-warrantable, there are lenders who offer non warrantable condo financing. These loans are often called portfolio loans and are intended for qualified buyers that cannot qualify for conventional financing. Portfolio lending are loans that are carried and often serviced by the lender and not sold on the secondary market like a traditional mortgage loan.

The lender considering your non warrantable condo may also require that all construction be completed and that more than half of the units be owner-occupied. There may also be limits to how much of the development can be held by one owner, often no more than 10 percent. 

Some lenders require the homeowners association must be controlled by residents and not under the control of the developer. Your lender may request to look at the homeowners association books to ensure that fees are being paid in a timely manner and that there are no pending lawsuits against the homeowners association. There may also be limits on how much of the development can be used for commercial use making it even more difficult to obtain financing if your condo is part of a condo hotel development.

Financing a Non-Warrantable Condominium

When traditional mortgage loans are not an option for your condominium purchase there are options that are more expensive and come with additional risks. Nonconventional mortgage loans used to purchase non-warrantable condominiums do not offer the same low rates that you’re used to seeing with a traditional loan like the one you used to purchase your home.

This is also true of the fees associated with these loans and you may be required to pay additional points and make a higher down payment in order to qualify. Many lenders require a down payment of as much as 30 percent of the purchase price. 

The community in which your condo is located, the number of units, any pending lawsuits against the homeowners association are all red flags that not only impact your ability to qualify for financing, but should weigh in on your decision whether or not the condominium is a good investment. We can provide less expensive options for portfolio lenders willing to finance non-warrantable condominium purchases for qualified buyers. Once you’ve determined that the condominium you’re interested in purchasing is non-warrantable there are options for financing once you’ve decided it’s the condominium you can’t live without.

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