Financing the Non-warrantable Condo

Have you ever been working with a condo buyer who found the ideal condo, only to discover that the condo is considered “non-warrantable”, making financing that condo very difficult? CondoIn fact, most institutional lenders won’t finance such condos because they are not eligible to be sold to the conforming secondary markets known as Fannie Mae and Freddie Mac. If your buyers are in the market for a condo, it’s highly recommended that they work with mortgage bankers or mortgage brokers to ensure that they are provided with the greatest amount of options and flexibility to finance their home.

OK, so what defines a non-warrantable condo? A condo is considered non-warrantable if it DOES NOT fit into one of three of the following classes.

CLASS I

1. Developer’s control of the homeowners association has been turned over to the condo owners
2. Project is not subject to additional phasing or add-ons which have not yet been completed
3. All common elements and amenities must be fully installed, completed and in operation
4. 70% of all units in the entire development must have been sold and or legally obligated to close
5. 70% of all units in the entire development must have been sold to owner occupants

CLASS II

1. Recent or current condominium conversions (from apartments)
2. Homeowners association has been controlled by the unit owners (other than the developer) for less than two years
3. Project is not subject to phasing or add-ons which have not yet been completed
4. All common elements and amenities are fully installed, completed and in operation
5. 70% of the units in the entire development must have been sold and/or legally obligated to close
6. 70% of the units in the entire development must have been sold to owner occupants
7. No more than 15% of the current unit owners are more than one month delinquent in payment of homeowners association dues or assessments

CLASS IIICondo Interior

1. Homeowners association has been controlled by unit owners (other than developer) for at least one year
2. Project is not subject to phasing or add-ons
3. All common amenities are fully installed, completed, and in operation
4. 90% of the units have been sold (owner-occupancy of at least 60%)

In general, the pricing for non-warrantable condos is about two percent (2%) higher than conforming financing and only adjustable-rate programs are available up to 80% financing. Consult with your favorite mortgage professional for further guidance and borrower qualifications!

photo credit: Mirage floors via photopin cc