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 New York City, Chicago, Boston, and everywhere else that a “non-standard” condominium exists.Verify your home buying eligibility (Apr 5th, 2020)
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 reasons :
- The project is more than 10% owned by one entity
- 50% or more of the project units are rentals
- More than 20% of the building square footage is “commercial”
- The project is filed with the SEC and is sold as an investment opportunity
- The project is “new” and grants concessions and/or abatements not listed on the settlement statement
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.
Another non-warrantable trait is homeowner association dues being paid less than 85% current. This means that if more than 15% of a condo building’s owners are delinquent to the association, conforming mortgages are unavailable to everyone that lives there, and everyone attempting to buy there, too.Verify your home buying eligibility (Apr 5th, 2020)
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 a 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 without suitable financing.
Thankfully, mortgage money is available for condotels and non-warrantables — you just have to know where to look.Verify your home buying eligibility (Apr 5th, 2020)
Yes, You Can Get Condotel And Non-Warrantable Condo Loans
Few banks offer mortgages for non-warrantable condos and condotels, but there are banks which do. Rates typically run a half-percent higher than for a comparable conventional mortgage, and minimum downpayments start at 20 percent.
Beyond that, however, getting an approval is simple.
- Prove your income
- Prove your assets
- 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.
Reputable condos and condotels are going to pass that test.
Furthermore, because mortgage approvals are handled by underwriters of small lenders (as opposed to those of a Big Bank), mortgage loan approval times are decidedly quick. It’s perfectly reasonable to close on a condotel or non-warrantable condo in less than 30 days.
20 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, Illinois; Miami, Florida; or anywhere else, and can’t get your financing together, Verify your home buying eligibility (Apr 5th, 2020).
Mortgage rates aren’t as low as what you’ll see from Freddie Mac’s weekly survey; and the mix of mortgage product may be limited; but financing is there for those whom apply.