Non-Warrantable Condominium Financing: What You Need to Know
Updated: Mar 22
Non-Warrantable Condominium Financing: What You Need to Know in Miami and Florida. If you're looking to purchase a condominium, you may come across the terms "warrantable" and "non-warrantable." A warrantable condo meets the criteria set by Fannie Mae or Freddie Mac, while a non-warrantable condo does not. In this article, we'll focus on non-warrantable condos and what you need to know about financing them.
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Understanding Non-Warrantable Condominium Financing
When navigating the Non-Warrantable Condominium Financing, it's crucial to understand the concept of non-warrantable condos. These types of condos do not meet the criteria set by Fannie Mae and Freddie Mac, which can significantly impact the financing process. Non-warrantable condos often present unique challenges when it comes to securing a mortgage, as many lenders are hesitant to finance properties that do not meet these established guidelines. By understanding what makes a condo non-warrantable, potential buyers can better navigate their options, anticipate potential financing hurdles, and make informed decisions about their property investment. This article aims to provide a comprehensive understanding of non-warrantable condos and the implications they have on the purchasing process.
What is a Non-Warrantable Condo?
A non-warrantable condo is a unit that does not meet Fannie Mae or Freddie Mac guidelines. There are several reasons why a condo unit may not meet these guidelines, such as low occupancy rates, high investor ownership, delinquencies in HOA or homeowners association dues, or a mixed-use building. Lenders view non-warrantable condos as riskier investments due to their unique circumstances and may be more stringent when it comes to financing. A non-warrantable condo can be a primary residence, second home or investment property.
Challenges with Non-Warrantable Condo Financing
Properties with a high percentage of units dedicated to short-term rentals can be classified as non-warrantable, as these can influence the stability and community dynamics of the condominium. Financing a non-warrantable condo can be more difficult than financing a warrantable condo. The risks associated with non-warrantable condos can make lenders wary and may require additional documentation or a higher down payment. Some lenders may even refuse to finance non-warrantable condos altogether. Non-warrantable condos are generally placed with Non-QM mortgages or Private Lenders.
Requirements for Non-Warrantable Condo Financing
The requirements for non-warrantable condo financing vary depending on the lender and the type of loan. However, some common requirements for condo mortgages include a higher down payment than for a warrantable condo, and in some cases a higher FICO score.
Non-Warrantable Condo Financing Options
There are several mortgage financing options available for non-warrantable condos. Let's explore some of them.
Portfolio Loans
One financing option for non-warrantable condos is a portfolio loan. These loans are held by the lender and not sold to Fannie Mae or Freddie Mac. As a result, portfolio loans typically have more flexible underwriting requirements than traditional mortgages, making them a viable option for non-warrantable condos.
Non-QM Loans
Non-QM loans are another financing option for non-warrantable condos. These loans are designed for borrowers who don't meet the criteria for traditional mortgages. Non-QM loans allow for more flexible underwriting guidelines. They allow for many things conventional loans do not allow. They are offered in Fixed rates and ARM's. Our non-qm no condo questionnaire program allows profit and loss, bank statements, and 1-year tax returns for income verification. 10 Year Interest Only 40 Year Fixed Rate Mortgages.
Hard Money Loans
Hard money loans are short-term loans secured by real estate. They are typically utilized by real estate investors who require swift financing. Often considered as the last resort, hard money loans are virtually guaranteed if the borrower has down payment funds or equity in the property. These loans are usually short-term and come with adjustable-rate mortgages (ARMs).
Bridge Loans
Bridge loans are short-term loans that are used to bridge the gap between the purchase of a new property and the sale of an existing property. These loans are quick and easy to qualify for. They are based solely on the property's value and the borrower's satisfactory credit history.
Jumbo loans are mortgages that exceed the loan limits set by Fannie Mae and Freddie Mac. These loans are typically used to finance high-end properties and offer various qualification avenues. Conventional, non-QM, private money, hard money, and bridge loans can all meet the size criteria for Jumbo loans.
Adjustable-Rate Mortgages (ARMs)
Adjustable-rate mortgages have interest rates that can fluctuate over time. These loans may be a good option for borrowers who plan to sell their non-warrantable condo within a few years.
Interest-Only Mortgages
Interest-only mortgages allow borrowers to make interest-only payments for a certain period of time. These loans can be a good option for borrowers who expect their income to increase in the future.
Requirements for Non-Warrantable Condo Financing
When it comes to financing a non-warrantable condo project there are specific requirements that borrowers must meet. These requirements can vary depending on the lender and the type of loan. Here are some common requirements for non-warrantable condo projects financing:
Higher Down Payment
One of the most common requirements for non-warrantable condo financing is a higher down payment than what is required for a warrantable condo. Lenders view non-warrantable condos as higher-risk investments, which means they require borrowers to have more skin in the game.
Higher Credit Score
Lenders also typically require a higher credit score for non-warrantable condo financing. A higher credit score demonstrates that the borrower is less likely to default on the loan, which reduces the lender's risk. Many lenders require a 680 Middle Score, while some non-qm lenders allow FICO scores down to 575. FHA loans allow FHA-approved condos with as little as 3.5 percent down with a 580 FICO score and a Fannie Mae-approved condo allows FICO scores down to a 620 with 5 Percent Down.
Cash Reserves
Some mortgage lenders may require that borrowers have a certain amount of cash reserves to qualify for non-warrantable condo financing. Cash reserves are funds that are readily available in case of an emergency or unexpected expense. This can vary across lenders so it's important to speak to someone at Bennett Capital Partners before making this plan.
Lower Debt-to-Income Ratio
Lenders may also require that borrowers have a lower debt-to-income ratio for non-warrantable condo financing. The debt-to-income ratio is a measure of a borrower's monthly debt payments compared to their gross monthly income. A lower debt-to-income ratio shows lenders that the borrower has more disposable income and is less likely to default on the loan. This is not that common, however, some lenders will allow for exceptions with lower debt ratios.
Benefits of Financing a Non-Warrantable Condo
Financing a non-warrantable condo can offer several benefits, including:
✔ Access to unique properties: Non-warrantable condos can include properties that don't fit into the traditional mold of what's considered a "condo," such as converted warehouses or historic buildings. Financing a non-warrantable condo can give you the opportunity to own a one-of-a-kind property that may not be available with warrantable condos.
✔ Flexibility in financing: Because non-warrantable condos don't meet the standard criteria set by Fannie Mae or Freddie Mac, financing options can be more flexible. This can be especially helpful for borrowers who have unique circumstances that would prevent them from qualifying for a traditional mortgage, such as self-employed individuals or those with lower credit scores.
✔ Competitive interest rates: Despite being considered higher risk, non-warrantable condo loans can often come with competitive interest rates. This is because lenders who specialize in non-warrantable condo financing have experience with these types of properties and can accurately assess the risk involved.
✔ Potential for higher returns: Investing in a non-warrantable condo can offer the potential for higher returns than traditional condos. This is because non-warrantable condos are often located in desirable areas and can be unique, which can make them more appealing to renters or buyers in the future.
✔ More control over the property: Non-warrantable condos may have fewer restrictions on how they can be used or rented out compared to warrantable condos. This can give owners more control over their property and potentially offer more income-generating opportunities.
Finding a Broker for Non-Warrantable Condo Financing
To secure Non-Warrantable Condo Financing, you can rely on Bennett Capital Partners, a reputable mortgage brokerage firm that specializes in financing non-warrantable condos. Our team has extensive experience in navigating the complex process of securing financing for unique and non-conforming properties, including non-warrantable condos. We work with a wide range of mortgage lenders and financial institutions to find the best financing options for our clients' needs. Contact us today to learn more about how we can help you finance the non-warrantable condo of your dreams.
FAQ's
What is a Non-Warrantable Condo?
A non-warrantable condo is a condominium that does not meet the guidelines set by government-sponsored entities like Fannie Mae or Freddie Mac. These condos are considered riskier for lenders to finance due to various factors such as the condo project still being under construction, a single individual owning more than 10% of the units, or the condo project being involved in litigation of any kind.
What Makes a Condo Non-Warrantable?
A condo becomes non-warrantable if it features any of the following restrictions: the project is still under construction, the development includes commercial space, a single person or entity owns more than 10% of the units, most of the units are rented to non-owners, the developer has not turned over the control of the HOA to the owners, or the property is involved in litigation of any kind.
How Can You Finance a Non-Warrantable Condo?
Financing a non-warrantable condo may be challenging but it's not impossible. You'll need a broker that specializes in financing for non-warrantable properties, specifically in portfolio loans and no income verification loans. These loans are customized and don't qualify for conventional financing.
What are the Challenges of Buying a Non-Warrantable Condo?
Buying a non-warrantable condo comes with several challenges. These condos require a hefty down payment due to stricter underwriting guidelines. The financial documents of non-warrantable condos may not be readily available, making it hard to determine its financial health. Additionally, non-warrantable condos may have limited appeal in the resale market due to lack of backing from government agencies and higher down payment requirements.
What is a Warrantable Condo?
A warrantable condo is a condominium that meets the guidelines set by government-sponsored entities like Fannie Mae or Freddie Mac. These condos are considered less risky for lenders to finance. At least half of the units must be owner-occupied and 10% of its annual budget should be contributed to reserve account every year.
Conclusion
At Bennett Capital Partners, we understand that every borrower's situation is unique, and we work closely with our clients to find the best financing solutions for their needs. Our team of experienced mortgage brokers can help you navigate the complexities and financial risks of Non-Warrantable condos.
In addition to our comprehensive guide on non-warrantable condo financing, we also have several other resources available for those interested in purchasing a condo. Our blog post on Condo Loans: Everything You Need to Know provides valuable information on the different types of condo loans available, while our article on Warrantable vs Non-Warrantable Condos: Understanding the Key Differences breaks down the nuances between these two types of condominiums. We encourage readers to check out these additional resources to gain a deeper understanding of the condo buying process and to explore all their financing options.
If you're ready to apply for non-warrantable condo financing, click on our APPLY NOW link to get started. Our team at Bennett Capital Partners is here to help you navigate the process and find the financing solution that works best for you. Don't let the non-warrantable status of your dream condo hold you back from becoming a homeowner. APPLY NOW and take the first step towards owning your non-warrantable condo.
Philip Bennett
Philip is the owner and Licensed Mortgage Broker at Bennett Capital Partners. He earned his degree in Accounting and Finance from Binghamton University and holds a Master's Degree in Finance from NOVA Southeastern University. With more than 20 years of experience, Philip has been a leader in the mortgage industry. He has personally originated over $2 billion in residential and commercial mortgages.
Learn more about Philip Bennett's background and experience on our Founder's page. Whether you're a first-time homebuyer or a seasoned real estate agent or investor, our team is here to help you achieve your real estate goals. Don't wait any longer, contact us today and let us help you find the right mortgage for your needs.
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