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Posted 07/13/2016

New Rules For Warrantable & Non-Warrantable Condo Mortgage Loans

Condo warrantability standards loosen

More Mortgages For Condo/Co-Op Owners

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

When you're buying a condo, lenders impose a different set of rules on you, and may sometimes change your interest rate.

These changes are among the reasons why you should always try to work with a great mortgage lenders. A mortgage lender who's looking out for your best interest will actually help you beat the system.

With condos and co-ops, you have to remember, it’s not just your creditworthiness the lender has to worry about. It also has to worry about 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 are getting looser about what they'll allow -- even with respect to low-downpayment home loans.

According to CoreLogic, condominium and housing cooperative financing increased by 31% in the second quarter of 2015; and financing opportunities are expected to remain high into 2016.

Click to see today's rates (Jul 23rd, 2016)

Conventional Mortgage Rules For Condos

The majority of home buyers use what's known as "conventional" mortgage financing.

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

With respect to condominiums, Fannie Mae and Freddie Mac use the term "warrantable" to describe 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 borrow against.

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
  • There is no litigation in which the¬†homeowners association (HOA) is named
  • Commercial space accounts is¬†25 percent or less of the total building square footage

Because of these rules, some of the common property types which fall into the non-warrantable category 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, including house boat and motor home projects.

When you're buying a condo, one of the first questions you should ask your real estate agent or lender is related to the building's warrantability.

A warrantable condo will get you access to lower mortgage rates than a non-warrantable condo because warrantable condos are lower risk to the bank.

Click to see today's rates (Jul 23rd, 2016)

FHA And VA Mortgage Rules For Condos

While conventional mortgages account for approximately half of all loans made, the next 35% of loans are attributed to FHA and VA lending.

FHA loans are loans 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 as compared to conventional mortgage financing; and loans are available in all 50 states.

Condo financing is often easier via the FHA or VA; and the Department of Veterans Affairs will often use the FHA's condo rules as its guidelines.

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, or a second home
  • In a newly-built¬†project, at¬†least 70% of the units must be sold

In general, though, if Fannie Mae or Freddie Mac have already approved a building for warrantability, the FHA and VA will authorize lending there, as well.

Neither the FHA nor the VA change their mortgage pricing for buyers of a condominium or a co-op.

As a buyer in a project or a building, you will receive the same quoted FHA or VA mortgage rate from your lender as a buyer of a single-family home.

Click to see today's rates (Jul 23rd, 2016)

Mortgages For Non-Warrantable Condos

For buyers of non-warrantable condos, mortgage financing is a more of a challenge. There are fewer lenders available from which to get a loan.

In general, a condo or co-op unit is considered non-warrantable if it shows any of the following characteristics:

  • It's in a¬†project which has yet to be completed
  • It's in a project for which the developer has not turned over control of the HOA
  • It's in a project which allows for short-term rentals
  • It's in a project where one person owns more than 10% of all units
  • It's in a project where the majority of units are "rentals"

In addition, a condo unit in a project involved in litigation of any kind will typically be given "non-warrantable" status. This is true regardless of whether the building is suing another party, or is the party being sued.

Non-warrantable condo financing is unavailable via Fannie Mae and Freddie Mac, and the FHA and the VA. To get a non-warrantable condo mortgage, you'll need to talk with a speciality 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 (Jul 23rd, 2016)

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.

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2016 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)