Warrantable & non-warrantable condo mortgage rules updated

July 27, 2019 - 7 min read

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 doing well and condo values climbing, mortgage lenders allow looser guidelines — even .

Expect condominium and housing cooperative financing opportunities to remain high this year.

Verify your new rate

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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.

Conforming mortgage rules for condos

The majority of home buyers 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 .

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.

Following are rules for condo warrantability:

Fannie Mae condo warrantability

Typically, a condo is considered warrantable if:

  • No single entity owns more than the following number of units in the project
    • Projects with 5-20 units: 2 units
    • Projects with 21+ units: 20% of units
  • The project consists of just 2-4 units (project review is waived in this case, and, apparently, there is no restriction on how many units a single entity can own, but check with your lender to confirm)
  • The unit is a detached condo (shares no walls with other units but is legally classified as a condo)
  • For investment properties, at least 50% of the units are owner-occupied or second homes
  • For owner-occupied transactions, there is no owner occupancy requirement
  • Fewer than 15% of the units are 60 days or more in arrears with their association dues
  • The homeowners association (HOA) is not named in any lawsuits
  • Commercial space accounts for 35% or less of the total building square footage

Freddie Mac condo warrantability

In our research, there are no material differences between Freddie Mac and Fannie Mae guidelines, except for one. Fannie Mae waives a project review for 2-4 unit condo projects, thereby giving no restriction to how many units a single entity can own.

Freddie Mac, however, says a single entity can only own one unit in a 2-4 unit project. So, it total, Freddie Mac’s single entity ownership limits are as follows:

  • 2-4 unit project: A single entity can own 1 unit
  • 5-20 unit project: A single entity can own 2 units
  • 21 units or more: A single entity can own up to 25% of the units in the project

Non-warrantable features for conventional loans

Common non-warrantable properties include condotels, timeshares, fractional ownership properties, multi-unit condos (the condo unit itself is two units), condos in a permanent care/assistance residence, 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 houseboat and motorhome projects.

A condo in monetary litigation will likely be disqualified from financing by the major agencies.

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.

Verify your condo buying eligibility

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. 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.

Verify your condo buying eligibility

Mortgages for non-warrantable condos

Mortgage financing is 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.

Finding a non-warrantable condo lender

When you buy into a condominium community, mortgage lenders apply extra scrutiny to the application — both you and your future HOA must comply with a set of underwriting guidelines.

“This is because you are not the only person responsible for the condition and upkeep of the condo – it’s also up to the condo association, which is accountable for maintaining the exterior and common areas,” says Ginger Wilcox, chief industry officer at Sindeo, a San Francisco-based mortgage marketplace.

“The lender wants to know whether the property is a good risk, and the sales process could be delayed or canceled if the condo association has financial problems or the common property isn’t maintained well.”

Scarlett Tassone, Vice President and mortgage banker with PrivatePlus Mortgage in Atlanta, says mortgage loan providers each have different rules and stipulations regarding financing for a condo.

“Fannie Mae and Freddie Mac each have a set of requirements that every condo association has to meet – such as the minimum amount of funds the association has in reserves, the amount of tenants past due on their homeowners association fees, the amount of units that are rentals or investment properties, et cetera,” says Tassone.

Should you skip a condo in favor of a townhome?

If you are eyeing a townhome instead, securing financing may not be quite as complicated. That’s because townhomes are treated similarly to single-family residences by lenders.

“With a townhome, the borrower owns the lot and the walls. Although they pay fees to a homeowners association, the HOA is only responsible for neighborhood upkeep and use of neighborhood facilities,” says Tassone.

Townhomes are considered “zero lot line” homes. In other words, you share a wall and the line between your lot and your neighbor’s is essentially zero.

This type of property may or may not lie within a planned unit development (PUD). Either way, finance underwriting guidelines similar to those for single-family homes apply.

“The underwriting process for fee-simple properties with a homeowners association is currently significantly easier than for condo association properties,” notes Gonche.

Size matters for condos and townhomes

However, whether it’s a condo or townhome, expect more attention from the lender if the unit is part of a smaller complex/building.

When the lending market is tight, it is often difficult to get loans on complexes with four or fewer units, according to Dana Graham, agent with Berkshire Hathaway Chairman’s Circle in Rolling Hills Estates, Calif.

“Lenders often view the risk as high because, if one of the owners gets in trouble and doesn’t pay his HOA dues, for example, that represents 25 percent of the owners in a four-unit building.”

Get unapproved condos approved

If possible, ask your real estate agent for help in recruiting the HOA/condo association to assist you in getting the property approved for financing. Be sure the association provides all the numbers and paperwork the lender requests.

Recent changes to condominium guidelines by Fannie Mae and Freddie Mac have made securing approval easier for HOAs, and many mortgage lenders are equipped to help with the process.

Tassone says to be aware of the cost of condo or association documents. “Most property management companies will not provide any documents free of charge, and the cost of these documents can range from $200-$500 or more.”

If the property is ultimately not approved by the lender, consider hunting for an approved multifamily property, or one with lower or no association fees.

“Try to be open-minded and find an experienced REALTOR® and lender who can walk you through the process and help you get those new keys,” says Gonche.

Lastly, be aware of the financial risks of owning a townhome or condo; these properties may not appreciate as quickly as single-family homes.

Alternative financing for non-warrantable condos and townhomes

While mortgages backed by the FHA, VA, Freddie Mac and Fannie Mae dominate the market, they aren’t the only options available.

Non-conforming mortgages are offered by institutions or groups of investors that make their own rules, and some may be willing to finance an unapproved condo, especially if the applicant is very strong and has a substantial down payment.

Smaller local banks can loan on these kinds of projects to support their communities, and other portfolio lenders (those that don’t sell their loans and keep them on their own books) may offer mortgages designed especially for unapproved condos.

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.

Time to make a move? Let us find the right mortgage for you


  • https://www.fanniemae.com/content/guide/selling/b4/2.2/02.html
  • https://www.fanniemae.com/content/fact_sheet/ineligible-condo-project-characterisitics.pdf
  • https://www.fanniemae.com/content/guide/selling/b4/2.1/02.html
  • https://sf.freddiemac.com/content/_assets/resources/pdf/requirements/condo.pdf?q=condo
Gina Freeman
Authored By: Gina Freeman
The Mortgage Reports contributor
With more than 10 years in the mortgage industry, and another 10 years writing about it, Gina Freeman brings a wealth of knowledge to The Mortgage Reports as its Associate Editor. Gina works with a team of world-class real estate and finance writers to bring timely and helpful news and advice to the audience. Her specialty is helping consumers understand complex and intimidating topics.