The Complete Guide to Warrantable and Non-Warrantable Condos: What You Need to Know

July 12, 2022
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When buying a condo, it’s important to know the difference between a warrantable and non-warrantable condo. Condo that are warrantable meet the requirements set by the government, while non-warrantable condos fail to meet all of those requirements. In this blog post, we’ll discuss what you need to know about each type of condo and help you decide which is right for you.

Warrantable condos are important because it meets the requirements set by the government. This means that the condo is eligible for FHA Federal Housing Administration) or VA financing, which can be helpful when buying a condo. A non-warrantable condo does not meet all of those requirements, so it cannot be financed through the government programs.

There are a few things that you need to know about warrantable and non-warrantable condos. First, let’s discuss what a warrantable condo is.

What is a warrantable condo and is important?

A warrantable condo is a condominium unit that meets the guidelines set by Fannie Mae, Freddie Mac, or the Federal Housing Administration (FHA). There are a few reasons why having a warrantable condo is important.

For starters, if you’re looking to get a mortgage, you’ll likely need to go through one of the government-sponsored enterprises (GSEs), such as Fannie Mae or Freddie Mac. In order to do so, your condo must meet their eligibility requirements.

If your condo is not warrantable, you may still be able to get a mortgage, but it will likely be a A portfolio loan through a private lender.  A portfolio loan is a loan that is held by the lender rather than being sold on the secondary market. This means that the lender takes on all the risk associated with the loan. As a result, portfolio loans may have more stringent underwriting criteria than conventional loans, which could mean a higher interest rate and less favorable terms.

In addition, if you’re looking to sell your condo in the future, it will likely need to be warrantable in order to be eligible for GSE financing, which is often the preferred type of financing for buyers.

So, what exactly do you need in order to have a warrantable condo?

There are several requirements that a condo must meet in order to be considered warrantable:

  • The construction of the condo must be complete.
  • More than half of the units in the condo must be owner-occupied.
  • No individual or company can own more than ten percent of the units in the community. This includes the developer.
  • The homeowners association (HOA) must be under control of the residents, as opposed to the developer.
  • More than 75 percent of the residents must be current with the HOA fees.
  • The HOA cannot be named in any current lawsuits.
  • If the community is not exclusively for residential use, commercial space must be 25 percent or less of the total building square footage.

What About Non-Warrantable Condos?

Now that we’ve discussed warrantable condos, let’s talk about their opposite: non-warrantable condos. A non-warrantable condo is a condominium unit that does not meet the guidelines set by Fannie Mae, Freddie Mac, or the Federal Housing Administration (FHA) and they are considered by most banks to be more “risky.”

They have set a criteria for what they deem as a “safe” investment, and if your condo does not meet those specific characteristics, then it is considered non-warrantable.

Non-warrantable condos are often newly built condos or ones that have been converted from another type of property, such as an office building. They may also be condos that are part of a larger project, such as a hotel or resort.

There are several reasons why a condo may be considered non-warrantable:

  • The construction of the condo is not complete.
  • More than half of the units in the condo are not owner-occupied. An individual or company owns more than ten percent of the units in the community.
  • Delinquency of 15%
  • More than 75 percent of the residents must be current with the HOA fees.
  • The homeowners association must be controlled by the residents rather than the developers.
  • If the community is not solely for residential use, commercial space must make up 25% or less of the overall building area.

How to find out if your condo is warrantable?

Determining whether a condo is warrantable can be a difficult task, as Fannie Mae and Freddie Mac do not keep a public list of approved projects. Instead, your lender (or real estate agent, if you are selling) may have to order a condo project review in order to determine whether the property is warrantable.

The review process can be time-consuming and expensive, so it is important to weigh all of your options before deciding whether to purchase a warrantable condo. If you are unsure whether a particular property is warrantable, you may want to consult with a real estate attorney or other experienced professional who can help you navigate the complicated approval process.

The best way to find out if your condo is warrantable or not is to speak with your lender or a housing counselor. They will be able to tell you what type of financing you’ll need in order to purchase a condo, as well as whether or not your condo is eligible for GSE financing.

Bottom Line

When you’re looking for a new place to call home, there are a lot of factors to consider. One important question to ask is whether your unit is warrantable. A warrantable condo is one that meets certain criteria set by the government-sponsored enterprises Fannie Mae and Freddie Mac.

These agencies provide loans for many condo buyers, so it’s important to make sure that your property meets their guidelines. Your real estate agent should be able to tell you whether a condo is warrantable, but if they’re unsure, they can help you research the answer.

Keep in mind that if a condo isn’t warrantable, you may have a harder time obtaining financing. So, if you’re thinking about buying a condo, be sure to ask your agent about its warrantability. It could make all the difference in your ability to purchase the property.

If you’re looking to sell your condo in the future, you’ll also want to make sure that it is warrantable. This way, you’ll have more buyers who will be able to finance the purchase through a GSE.

The bottom line is that warrantability is an important factor to consider when purchasing or selling a condo.

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