Thanks for visiting The Mortgage Reports. To stay absolutely current on mortgage markets and important guideline changes, be sure to take my free daily email alerts.

As mortgage lenders reduce their respective lending risk, certain condominiums around the country are being specifically excluded from approval.

It's stymieing purchase and refinance activity in Chicago, Florida and everywhere else a "non-standard" condominium exists.

About Non-Warrantable Condos

A non-warrantable condo, by definition, is a condominium that does not meet the minimum eligibility standards as set by Fannie Mae and/or Freddie Mac.

When condo buildings  fail Fannie and Freddie's minimum standards, it's often for one or more of the following reason:

1. The project is more than 10% owned by one entity
2. 50% or more of the project units are rentals
3. More than 20% of the building square footage is "commercial"
4. The project is filed with the SEC and is sold as an investment opportunity
5. The project is "new" and grants concessions and/or abatements not listed on the settlement statement

And, there are other non-warrantable traits, too, including too many "unsold units", certain types of pending litigation, and length of time that the condo board has been in control of the building's owners.  The list is quite long, actually.

In Mortgages, It's About The Building AND The Buyer

The mere presence of any of these characteristics instantly characterizes the building as "non-warrantable",  preventing building owners from securing conventional mortgage financing on today's mortgage guidelines.

This fact can surprise homeowners who may otherwise be well-qualified.

For home buyers and owners facing a non-warrantable condo situation, good credit, good income, and good downpayment suddenly becomes irrelevant.  It's the new truth in lending:

It's not just about the buyer anymore; it's about the building, too.

The same set of rule applies to another type of condo classification; one that's normally associated with luxury and vacationing.  The condotel.

Condotels Face Similar Underwriting Scrutiny

Condotel is a portmanteau of the words "condominium" and "hotel".  It describes buildings used as both a condo and a hotel, with owners keeping the rights to rent their units while they're not actually using them.

Most often, condotel rentals are managed by an on-site rental company.

A typical condotel arrangement would be in say, Miami, where a family owns a unit in a condotel building on the mountain but only visits Miami 6 weeks per year.  During the other 46 weeks, the on-site rental company rents the unit as a "hotel room" to other Miami vacationers.

The Trump International Hotel & Tower in Chicago has a similar setup.

Like non-warrantable condos, condotels cannot be financed through Fannie Mae or Freddie Mac and so, more often than not, condotel buyers have found themselves up a creek; ready to close but unable to find financing.

Thankfully, mortgage money is available for condotels and non-warrantables -- you just have to know where to look.

Yes, You Can Get Condotel And Non-Warrantable Condo Loans

Over the last few weeks, less than a half-dozen banks chose to re-open the market for non-warrantable and condotel mortgages. Rates typically run a half-percent higher than comparable conventional mortgages and the minimum downpayment starts at 25 percent.

Beyond that, however, getting an approval is simple.

1. Prove your income
2. Prove your assets
3. Prove your credit score

That's it.  Now, there are some building considerations, too, but they're not nearly as tough as what Fannie or Freddie would throw at you.  And the building requirements are more geared toward making sure the building is well-constructed and insured than anything else.

Every reputable condo and condotel in the country is going to pass that test.

And even better -- because approvals are being handled by individual underwriters and not Big Banks, loan approval times are decidedly quick.  It's perfectly reasonable to close on a condotel or non-warrantable condo in less than 30 days.

15 days from contract-to-closing is common with condotels and non-warrantables.

Get Non-Warrantable Condo Financing

If you're under contract for a non-warrantable condo or condotel in Chicago, Florida, or anywhere else, . The more you tell me -- building name, address, purchase price, closing date, etc -- the more I can help you.

I can lend on non-warrantable condomoniums and condotels in many states.

---

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.