Click To See Today's Rates

Posted 01/06/2017

Google+
LinkedIn
Reddit

Warrantable & Non-Warrantable Condo Mortgage Rules Updated

Condo warrantability standards loosen

More Mortgages For Condo/Co-Op Owners

Buying a condo is a lot like purchasing a "regular" home, but with one big difference -- mortgages are tougher to come by.

Lenders impose a different set of rules on you when you buy a condo. They may sometimes increase your interest rate.

The most experienced and professional mortgage lenders can help you navigate the condo financing maze. A mortgage lender who's looking out for your best interest can help you beat the system.

With condos and co-ops, it’s not just your creditworthiness the lender has to worry about. It must also verify the fiscal and physical health of the entire development into which you're buying.

Fortunately, with the housing market in recovery and condo values climbing, mortgage lenders allow looser guidelines -- even low-downpayment home loans.

Expect condominium and housing cooperative financing opportunities to remain high into 2017.

Click to see today's rates (Feb 24th, 2017)

Conforming Mortgage Rules For Condos

The majority of homebuyers use "conforming" mortgage financing.

This means that their loan purchased by one of two government-sponsored entities -- Fannie Mae or Freddie Mac -- and that the loan meets the two group's minimum standards.

Fannie Mae and Freddie Mac use the term "warrantable" to describe condominium projects and properties against which they'll allow a mortgage.

Condo projects and properties which don't meet Fannie Mae and Freddie Mac warrantability standards are known as non-warrantable.

Non-warrantable condos are more challenging to finance.

Typically, a condo is considered warrantable if:

  • No single¬†entity owns more than 10% of the units in a project, including the developer
  • At least 51% of the units are owner-occupied
  • Fewer than 15% of the units are in arrears with their association dues
  • The homeowners association (HOA) is not named in any lawsuits
  • Commercial space accounts for 25 percent or less of the total building square footage

Common non-warrantable properties include condotels, time shares, fractional ownership properties, and other projects which require owners to join an organization, such as a golf club.

Manufactured housing projects and other developments which are not legally considered real estate are also excluded from warrantability. These include house boat and motor home projects.

When buying a condo, ask your real estate agent or lender about the building's warrantability before you go any further.

A warrantable condo typically gets you lower mortgage rates than a non-warrantable condo. Warrantable condos create lower risk for the bank.

Click to see today's rates (Feb 24th, 2017)

FHA And VA Mortgage Rules For Condos

VA and FHA home loans are government-backed mortgages. FHA loans are insured by the Federal Housing Administration. VA loans are loans guaranteed by the Department of Veterans Affairs.

Both loan types are known for their more flexible lending guidelines than conforming mortgage financing. Loans are available in all 50 states.

The FHA and VA maintain lists of approved communities, but don't despair of the unit you want isn't in a development on those lists. Both agencies have made it easier for condo and co-op associations to get their buildings approved.

In fact, the FHA recently changed its condo approval rules to help more borrowers get qualified.

Some of the new basic requirements for an FHA condo loan now include:

  • The borrower must meet "standard" FHA mortgage guidelines
  • At least half of a project's¬†unit must be owner-occupied
  • In a newly-built¬†project, at¬†least 70% of the units must be sold

In general, if Fannie Mae or Freddie Mac have already approved a building, the FHA and VA will also authorize lending there.

Neither the FHA nor the VA charge borrowers extra to finance a condominium or a co-op. You can get a condo loan with the same FHA or VA mortgage rate as you could a single-family home.

Click to see today's rates (Feb 24th, 2017)

Mortgages For Non-Warrantable Condos

Mortgage financing is a more of a challenge for buyers of non-warrantable condos. There are fewer available programs for these dwellings.

In general, a condo or co-op unit is considered non-warrantable if:

  • The project has yet to be completed
  • Its developer has not turned over control of the HOA to the owners
  • The community allows short-term rentals
  • A single person or entity owns more than 10% of all units
  • It's in a project where the majority of units are rented to non-owners

In addition, a condo unit in a project involved in litigation of any kind is usually "non-warrantable." This is true whether the community is the plaintiff or the defendant in the suit.

Non-warrantable condo financing is unavailable via Fannie Mae and Freddie Mac, the FHA or the VA. To get a non-warrantable condo mortgage, you'll need to talk with a specialty lender.

There are plenty of them online.

What Are Today's Condo Mortgage Rates?

The housing market has recovered from last decade's downturn, and lenders are more willing to lend on condos and co-ops nationwide.

Get today's live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.

Click to see today's rates (Feb 24th, 2017)

The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.

3 Testimonials

Dan H.

The Mortgage Reports is very informative and very helpful. Its daily updates are among the first emails I open each morning.

Katrina B. Lab Technician

I look forward to reading The Mortgage Reports. Its information and updates helped me to buy my first home. Thank you!

Marie M. Real Estate Agent

I have been a Realtor for more than 30 years and enjoy The Mortgage Reports. It's terrific to learn something new almost every day.

2017 Conforming, FHA, & VA Loan Limits

Mortgage loan limits for every U.S. county, as published by Fannie Mae & Freddie Mac, the Federal Housing Administration (FHA), and the Department of Veterans Affairs (VA)