Because financing options are limited, non-warrantable condos create problems for buyers and sellers. However, if you work with the right team, you can find affordable financing for next home, regardless of the property’s status.
Financing Options for Non-Warrantable Condos
What are Non-Warrantable Condos?
To help support the real estate market, which is seen as an important part of quality-of-life standards, government-backed companies like Fannie Mae and Freddie Mac purchase mortgage loans on the secondary market. By purchasing loans, they create more confidence for lenders, which leads to more available housing for potential homeowners. Fannie Mae provides support for many housing types, including single-family homes. They also provide support for condos.
However, some condos are “non-warrantable,” meaning Fannie Mae will not purchase loans made on these properties. Condos may be non-warrantable for many reasons, including…
Split-ownership: If you have to share ownership with another person, it will be non-warrantable. This typically applies to time-shares and similar ownership structures.
Membership requirements: If you have to be a member of a group or club, beyond an HOA, to live in the property, it may be non-warrantable. This typically involves mandatory country clubs and golf memberships.
Condos in litigation: Litigation is a major concern for lenders, as it presents numerous unknowns for future costs. Until the legal issue is settled, the property remains non-warrantable.
Projects with a lien: If there is any other lien against the property, the property will not be available for Fannie Mae or Freddie Mac support. This could apply to improvement loans and many other liens.
Majority ownership by a single entity: If a single person or group owns a large portion of the properties, condos in that facility are non-warrantable. The specifics on how much one entity can own will change depending on the amount of units in the building.
What Financing is Available?
If you come across a property that has one or more of the issues listed above, you might think that financing is impossible. Fortunately, when you work with a dedicated professional, you’ll have various options that help you get the specific financing you need.
When you visit our team, we’ll help you find the right financing options for your specific needs, and we have many products available that can help you finance the purchase of a non-warrantable condo. These products will be under various loan-plan types, including 1/1, 3/1, 5/1, and 7/1 balloon mortgages, which all require a 15-year maturity timeframe. They are also available in 10 or 15-year fixed-rate mortgages. To enhance availability, these loans are available all across the country, with the exception of Georgia and Tennessee. Also, in Texas there are no cash-out options available. We are proud to offer these and many other loan options in San Diego and the surrounding areas.
If you choose one of these loan options, you could be able to borrow up to $2 million, which makes many high-quality condos available.
For amortization, there is a maximum maturity of 15 years, while adjustable programs can have a 30-year amortization period.
For the interest rate, you will have to refer to the current rate sheet from the specific lender giving the loan. Most rates assume automatic payment, but if you don’t do automatic payment, you will likely add about .25% to your interest. There is a rate lock of 45 days that starts at the application, but there is also the option to waive the 45-day lock. Extended locks are available, but only with a fee to rates or points.
The qualifying note rate is +4% on the 1/1 and 3/1 loans, while the rate is +2% on the 5/1 loans.
To qualify, the loan will need to meet specific loan-to-value ratio requirements. This essentially means that the bank will only finance a specific portion of the property. For example, if the property has a value of $500,000, and the bank provides $250,000 while the homeowner covers the rest, the LTV is 50%. If the bank covers the entire $500,000, the LTV is 100%. For properties of 1-4 units less than $1 million, the maximum allowable LTV is 70%. However, it the property you purchase is over $1 million, the allowable LTV is 65% maximum.
There are no prepayment penalties for this property, and no assumability.
To qualify, you will need to meet a few specific requirements. You cannot have any late mortgage payments in the past 24 months, and your debt-to-income ratio must be 43% or less. No income will be granted to the borrower on unpaid properties if proper documentation is not provided. These documents must be provided before the close of escrow. You will also need reserve cash to cover a full year of mortgage payments, taxes, and insurance. To qualify, bring copies of all bank statements for every borrower.
If you are a salaried or W-2 employee, you will need a minimum credit score of 660 and full documents verifying your income. For self-employed, the requirements are a little more stringent. You’ll need a 700 FICO score, full income documentation, two-years of tax returns, and proof of at least two years in business.
Entity borrowers will need to have a personal guaranty with 100% recourse.
Appraisals will also be required for the property. A full property appraisal will generally be needed, and two full appraisals could be required if the property is valued at $1 million or higher. If the property is $1 million to $2 million and the LTV is 60% or less, only one full appraisal and field review will be needed.
Other requirements include ALTA-policy for the title, as well as tax tracking, among other requirements.
Get Affordable Financing for a Non-Warrantable Condo
The team at San Diego Purchase Loans is ready to help you find the right financing for any property, including non-warrantable condos. We use a common-sense approach to underwriting so you have the best chance at approval!
Chad and his team are fantastic!
Chad and his team assisted me with the financing of my condo. Every member of Chad’s team was extremely professional, highly competent, super responsive, and friendly. They realize that financing a home can be a stressful experience and they do their best to alleviate that stress by keeping you in the loop on everything. They were great about giving me frequent updates on the status of my application. In addition, they happily answered my questions. At one point, when I felt like I was pestering Chad with questions, his response was a friendly, “keep them coming!” And he meant it!!! Likewise, Maria and Karina were just a pleasure to work with as well! This team is like a fine-tuned machine. Thank you so much for all of your help!!!
Chad and his team were very attentive to all of my needs, they called , emailed and checked in often. No question was left unanswered! Maria was a superstar! taking all my calls no matter the time or day and walking me through every process. The follow through was amazing and I am just so happy that my realtor referred them to me. I was originally referred to another lender that pretty much had no time for me nor did they even bother to try and find me the right loan since I am a widow with one income and a first time buyer with so so credit. I am completely happy with my loan and everything they did for me! Thank you Chad, Maria and Karina for all you did!
Excellent customer service – highly recommended!. I was referred to Chad by one of my friend. During our initial meeting, Chad walked me through the lending process and provided multiple ideas to start the home search. He got me pre-approved in couple of days. After looking for months, we finally liked a house but it was over our budget. He came up with an intelligent financing strategy and provided an excellent rate that let us purchase our new house. Chad and his team are patient, professional and always available – literally 7 days a week, 24×7. I can’t remember the last company I worked with that returned calls and emails in such a timely manner! I will happily recommend him to others.”