Warrantable vs Non-Warrantable Condos: Understanding the Key Differences
- Philip Bennett (NMLS # 1098318)
- Sep 12, 2022
- 7 min read
Updated: Jul 4
Are you considering buying a condominium in Florida? If so, you need to understand the difference between warrantable and non-warrantable condos. Warrantable condos are considered less risky by lenders, making them easier to finance. Non-warrantable condos are considered riskier and may be more difficult to finance.
In this blog post, we will explain the key differences between warrantable and non-warrantable condos, and help you decide which type of condo mortgage is right for you.
Key Takeaways
✅ Warrantable condos meet specific criteria by Fannie Mae and Freddie Mac and are considered less risky, making them easier to finance.
✅ Non-warrantable condos do not meet the criteria, are deemed riskier, and can be more difficult to obtain financing for.
✅ Factors like owner-occupancy ratios, litigation, reserves, and insurance coverage determine if a condo is warrantable.
✅ Buyers should understand the differences and work with an experienced lender like Bennett Capital Partners when financing a condo purchase.
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Warrantable vs Non Warrantable Condos
Are you considering buying a condo in Florida? If so, you need to understand Warrantable vs Non-Warrantable Condos. Warrantable condos are considered less risky by lenders, making them easier to finance. Non-warrantable condos are considered riskier and may be more difficult to finance.
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What is a Warrantable Condo?
A warrantable condo is a type of condominium that meets specific criteria set by Fannie Mae and Freddie Mac, the two largest mortgage finance companies in the United States. Warrantable condos are considered less risky for lenders, which makes it easier for buyers to obtain a mortgage. When selecting a condo community to reside in, you want to ask the listing agent "is the condo warrantable". Knowing this upfront will greatly aide your condo purchase.
Here are some of the reasons why a condo may be considered warrantable:
✔ The majority of units in the building are owner-occupied. This means that most of the residents are actually living in their units, rather than renting them out. Lenders prefer to lend to owner-occupied properties because they are less likely to be abandoned or foreclosed on.
✔ No single entity owns more than 10% of the units. This guideline helps ensure that no individual or organization holds excessive control over the condo association. While the exact percentage requirement may vary slightly depending on the lender or loan program, 10% is the standard benchmark set by Fannie Mae and Freddie Mac.
✔ The building is not involved in any pending litigation. This means that there are no lawsuits currently pending against the condo association or the building.
✔ The condo association is financially stable and has adequate reserves. This means that the association has enough money on hand to pay for unexpected expenses, such as repairs or lawsuits.
✔ The condo association has insurance coverage that meets Fannie Mae and Freddie Mac's requirements. This typically includes sufficient master property insurance, liability coverage, and fidelity insurance, ensuring the building and its units are fully protected against potential losses.
If you are considering buying a condo, it is important to find out if it is warrantable. You can do this by contacting your lender or a real estate agent. Warrantable condos are generally a better investment than non-warrantable condos because they are easier to finance and they are less risky for lenders.
What is a Non-Warrantable Condo?
A non-warrantable condo is a type of condominium that does not meet specific criteria set by Fannie Mae and Freddie Mac, the two largest mortgage finance companies in the United States. Non-warrantable condos are considered more risky for lenders, which makes it harder for buyers to obtain a mortgage.
Here are some of the reasons why a condo may be considered non-warrantable:
✔ The majority of units in the building are rented out, rather than owner-occupied. This means that most of the residents are not actually living in their units, but are instead renting them out to tenants. Lenders prefer to lend to owner-occupied properties because they are less likely to be abandoned or foreclosed on.
✔ A single entity owns more than 10% of the units. This helps to prevent one person or entity from having too much control over the condo association.
✔ The building is involved in significant pending litigation. This typically includes lawsuits related to structural integrity, safety concerns, or financial stability of the condo association. Such litigation increases risks for lenders, making the condo non-warrantable.
✔ The condo association lacks financial stability or sufficient reserve funds. This means the association may not have enough money set aside to cover unexpected expenses, such as significant repairs, maintenance issues, or legal costs, increasing the financial risk to lenders and buyers.
✔ The condo association does not have insurance coverage that meets Fannie Mae and Freddie Mac's requirements. This means that the association does not have enough insurance to cover the value of the units in the building.
Here are some additional things to consider when buying a non-warrantable condo:
✔ The cost of the condo: Non-warrantable condos are typically less expensive than warrantable condos. This is because they are considered to be more risky investments.
✔ The condo association fees: The condo association fees for a non-warrantable condo may be higher than the fees for a warrantable condo. This is because the association may have to pay for more unexpected expenses, such as repairs or lawsuits.
✔ The condition of the building: It is important to inspect the building carefully before you buy a non-warrantable condo. Look for signs of damage or deferred maintenance.
✔ The financial stability of the condo association: It is important to find out if the condo association is financially stable. You can do this by looking at the association's financial statements.
✔ The insurance coverage of the condo association: Make sure that the condo association has enough insurance coverage to protect your investment.
Non-Warrantable Condos can also go by the term; unwarrantable condo or
non warranted condo. The latter two terms are a layman would use. Lenders always use the term non-warrantable condos. Keep this in mind when you are talking to realtors and sellers.
For more information on warrantable and non-warrantable condos, please visit the following websites:
Which Type of Condo is Right for You?
If you're considering buying a condo, it's important to understand the differences between warrantable and non-warrantable condos. In general, warrantable condos are a safer bet for buyers, as they are considered less risky for lenders. This means that you may be able to get a better interest rate and have an easier time securing financing if you choose a warrantable condo.
However, there are some circumstances where a non-warrantable condo may be the better choice. For example, if you're looking for a condo in a building that is primarily rented out, a non-warrantable condo may be your only option. Additionally, if you're willing to accept a higher interest rate or put down a larger down payment for a condo, you may still be able to secure financing for a non-warrantable condo.
Conclusion
At Bennett Capital Partners, we believe that buying a condo in Florida should be an exciting and rewarding experience, and we're here to help you every step of the way. If you are a seasoned investor or first time homebuyer, Bennett Capital Partners can help you.
By understanding the ins and outs of condo loans in Florida, you can make informed decisions and achieve your real estate goals with confidence. If you have any questions or want to explore your options, please visit our condo mortgage loans webpage to learn more about our services and how we can assist you.
For more information on condo loans in Florida, check out our informative blog post on Condo Loans: Everything You Need to Know, which provides a comprehensive overview of qualification criteria, benefits, and risks. You can also go to our condo-tel mortgage programs page to learn more. Contact us today to speak with a loan officer and start your condo-buying journey with confidence. We look forward to helping you achieve your real estate goals!
📞 Give Us A Call Today 1-800-457-9057
FAQ's
What is the difference between warrantable and non-warrantable condos?
Warrantable condos are those that meet the lending criteria established by Fannie Mae and Freddie Mac, while non-warrantable condos do not.
What makes a condo not warrantable?
There are a number of factors that can make a condo not warrantable, including:
The condo has a history of structural problems.
The condo association is in financial trouble.
The condo has a high percentage of rental units.
The condo is located in a floodplain or other high-risk area.
What does it mean if a condo is warrantable?
If a condo is warrantable, it means that it meets the lending criteria established by Fannie Mae and Freddie Mac. This means that it is more likely to be approved for a mortgage, and the interest rates will likely be lower.
What are examples of non-warrantable ineligible properties?
Some examples of non-warrantable ineligible properties include:
Timeshares
Condominiums that are less than 50% owner-occupied
Condominiums that have a history of financial problems
Condominiums that are located in floodplains or other high-risk areas
Philip Bennett
(NMLS # 1098318)
Philip is the owner and Licensed Mortgage Broker at Bennett Capital Partners, LLC (NMLS # 2046862). He earned a Bachelor’s degree in accounting and finance from Binghamton University and a Master's in finance from Nova Southeastern University. With more than two decades of industry leadership, Philip has successfully guided thousands of clients through complex mortgage transactions.
Learn more about Philip Bennett’s background on our Founder’s page. Whether you’re a first-time homebuyer or a seasoned real estate investor, we are here to help you reach your goals. Don’t wait - contact us today and let us help you find the right mortgage for your needs.
