Warrantable and non-warrantable Condos

Purchasing a non-warrantable condo is a tricky and complicated process. In fact, most Realtors don’t know what warrantability is or how it works. Many conventional lenders do not have non-warrantable finance options. The problem is, there are a lot of non-warrantable condos in Austin.

To put it simply, a warrantable condo meets the lending criteria established by Fannie Mae and Freddie Mac and has several financing options available. A non-warrantable condo does not meet Fannie Mae, Freddie Mac, VA, or FHA established criteria. Financing options are limited.

** The important thing to take away is if you are an FHA or VA buyer, you cannot purchase a non-warrantable condo. If you are attempting to buy a non-warrantable condo with conventional financing you will need at least 15-20% cash down payment and possibly up to 50%. The closing process on a non-warrantable condo, or getting a condo approved for warrantability, can take months.

The worst case scenario is finding a property you love and then you find out 3 weeks into the transaction you find out you can’t get financing on the condo. To prevent this, you need to work with a lender who specializes in condos and a Realtor who knows which communities are warrantable and understands how to work around the issues of non-warrantable condos.

Let me explain this in two different ways:

These features below will make a condo non-warrantable, meaning an FHA, VA or conventional buyer wanting to put less than 10% down cannot purchase.

  • Single Entity owns more than 10% of the units
  • Commercial space exceeds 25%
  • Condotel like features
  • More than 15% of the owners are 60 or more days delinquent
  • Investment concentration: no more than 50% of the owners can be investors*
  • Budget is inadequate
  • Project involved with litigation

In other words, a condo is considered warrantable if it meets the following…

  • Projects must consist of two or more units.
  • No more than 25 percent of the project’s total floor area can be used for non-residential/commercial use
  • No more than 10 percent of the units can be owned by one investor/entity (unsold or unoccupied units held by the builder are excluded).
  • No more than 15 percent of all units’ homeowners association fees can be 60 or more days delinquent.
  • Financial documents needed for review are the current year’s budget, current balance sheet, actual income and expense statement for the project, and possibly bank statements.
  • At least 50 percent of the total units in the project must be owner-occupants (not tenants).
  • No current litigation

*If you are purchasing your primary residence or second home then the investment concentration does not apply for a non-warrantable status. This only applies to investors and VA buyers. The HOA determines investor concentration by leases and P.O boxes.

Supreme Lending is one of the few teams in the country who have a dedicated condo division.  I highly recommend getting pre-approved with Jim and Jami if you are in the market for a condo.

Jim Mihalik

(214) 497-1643

jim.mihalik@supremelending.com

Jami Brunson

(469) 917-6606

Jami.Brunson@supremelending.com

 

 


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