A Non-Warrantable Condo is not a new style of condo, it is a condominium that does not meet the minimum standards set by Fannie Mae and/or Freddie Mac. In other words, the condo cannot be warranted to meet Fannie/Freddie guidelines. Most lenders will want a condo to be warrantable to Fannie or Freddie so that the loan can be sold to Fannie or Freddie, especially now that most banks and mortgage lenders are only selling to Fannie Mae and Freddie Mac. If a condo is not able to be warranted to Fannie/Freddie guidelines, it is usually due to the fact that the condo has a high investor level. Lenders prefer to see that a condo has 51% or more owner occupants with no more than 49% rentals, and in actuality they really prefer 60% owner occupied, or higher.
But there are a whole host of other things that a lender will analyze when looking at a condo to see if it meets Fannie/Freddie guidelines, and the rules vary depending on if the condo is new construction or existing/resale, such as:
1. Are the homeowners or developers in control of the homeowners association?
2. Is the project subject to additional phasing or add-ons?
3. Are all common elements and amenities completed?
4. What percentage of all units in the development are sold?
5. Is the condo undergoing any litigation?
6. Are of any of the unit owners behind on their dues?
7. And of course, what percentage of the units in the development have been sold to owner occupants?
8. And there is even more…
The bottom line is that when you are buying a condo, the banks and mortgage lenders will not only be underwriting your creditworthiness, they will also be underwriting the condo.
A CONDO QUESTIONNAIRE MUST BE COMPLETED BY THE PROPERTY MANAGEMENT COMPANY TO DETERMINE THE CONDO’S ELIGIBILITY.
Of course, you may not need a condo questionnaire if your loan approval comes back with a “Limited Review”, which I just blogged about here.
The bottom line is that getting a condo loan is more difficult than meets the eye, and has a lot to do with the borrower’s down payment, credit score, debt ratios and the condo itself. When looking to buy a condo always call a mortgage professional who can help research the financing options up front before you waste your time going under contract. When listing a condo for sale (attention all Realtors and sellers) ALWAYS consult a mortgage lender for advice on what type of financing is available and how much down payment will be required, so that you can properly market the condo for sale.