One of our specialties is providing non warrantable condo loans in Florida to purchase or refinance condominium properties that do not meet Fannie Mae and Freddie Mac’s guidelines.
A lot of people—young professionals, newlyweds, and big families alike—are usually caught between the dilemma of choosing between a condominium property or a single-family home. It’s true that having your own house can provide you with a lot of freedom to roam and change things the way you like them.
But choosing a condominium property can also be appealing. Condos offer their owners the luxury of not having to stress out about maintenance, up-keeping your home facade, or mowing the lawn. Condos can also make great investment properties to rent out and generate passive income.
There are a lot of advantages that only condo-living offers, and it is no surprise that more and more people are turning to buy a condominium property instead of a house for a more convenient residential option. However, while purchasing a condo unit can be a wise investment, you must first ensure that you can obtain financing that suits your need.
It starts by knowing that condo financing is not as easy as choosing among the available condo properties along your way. In fact, condo financing has its own set of rules. One such rule applies to non-warrantable condos, which many lenders shy away from.
This comprehensive guide will introduce you to non-warrantable condos, the basics of financing these types of properties, and your purchase and refinance options.
Buying a condo in a non-warrantable building comes with challenges when it’s time to get a mortgage Many traditional lenders shy away from these properties But with the right approach, you can still find competitive non-warrantable condo loan rates and financing.
What makes a condo non-warrantable, and how much more will it cost you in mortgage rates and fees? I’ll explain what to expect as a buyer of one of these unique properties.
What Is a Non-Warrantable Condo?
First, let’s define what makes a condominium non-warrantable
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It’s a newly built project that isn’t completed yet. Lenders want a proven track record.
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The developer still controls the HOA and hasn’t turned it over to homeowners. This raises governance concerns.
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A high percentage of units are rented out rather than owner-occupied. Most lenders want to see at least 50% owner-occupancy.
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The HOA allows short-term rentals like those booked through Airbnb. This can affect building stability.
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One person or entity owns more than 10% of the units. This signals potential control issues.
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The HOA or developer has any pending litigation issues. Legal troubles are seen as risky.
Essentially, a non-warrantable condo lacks the safeguards and history lenders like to see in a stable community they can sell loans backed by.
Why Do Non-Warrantable Condos Cost More to Finance?
Lenders charge higher mortgage rates and fees for non-warrantable condos because they’re seen as riskier bets in a few key ways:
Investor interest – A high percentage of investor-owned units means fewer owner-occupants invested in the property long-term.
Unstable ownership – New projects with developer control and high renter occupancy may indicate unstable future funding, governance and costs.
Resale challenges – Units may be harder to resell without project approval and a large base of owner-occupant buyers.
Litigation uncertainties – Current or pending HOA or developer lawsuits are seen as red flags by lenders.
Loan ineligibility – Loans for these properties can’t be sold to Fannie Mae and Freddie Mac, limiting lenders’ options.
As a result, lenders charge higher mortgage rates, fees and down payment requirements to compensate for the elevated risk.
What Interest Rates Can You Expect on Non-Warrantable Condo Loans?
In general, expect to pay 0.5 to 1 percentage point or more in mortgage rates for a non-warrantable condo versus a warrantable property with similar attributes.
For example, if current rates for a 30-year fixed-rate conforming mortgage are around 6%, you might pay 6.5% to 7% for a non-warrantable condo loan.
The exact premium will depend on factors like your credit score, down payment amount, debt-to-income ratio, loan type and lender.
You can offset some of these extra costs with a larger down payment, stronger credit profile or use of discounts like relationship pricing.
7 Tips for Getting the Best Non-Warrantable Condo Loan Rate
Follow these tips to make sure you get the lowest available interest rate and fees on a mortgage for a non-warrantable condominium:
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Shop around – Compare quotes from multiple lenders to find the best deals.
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Improve your credit – Shoot for scores of 740 or higher to reduce rates.
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Save up a larger down payment – Putting down 20% to 30% can help you qualify for the best pricing.
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Lower your DTI – Keep debts minimal so your DTI ratio stays below 40%.
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Consider adjustable-rate mortgages (ARMs) – Shorter-term ARMs sometimes have lower rates.
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Use relationship discounts – Turn to lenders where you have accounts to score rate deals.
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Buy discount points – Pay points upfront to buy down the interest rate.
With a savvy approach, it’s possible to secure competitive financing even for non-warrantable condos.
7 Lenders to Consider for Non-Warrantable Condo Loans
Not all lenders are open to financing non-warrantable condos. But these ones tend to offer some of the best rates and terms:
- First Heritage Mortgage
- Chernoff Diamond & Co.
- CMG Financial
- Northpointe Bank
- Nations Lending
- PrimeLending
- United Mortgage Lenders
Reach out to multiple lenders on this list to compare your options. Local banks and credit unions may also provide non-warrantable condo loans.
Alternatives to Traditional Financing for Non-Warrantable Condos
If you have trouble getting a good mortgage rate for a non-warrantable condo purchase, here are some options to consider:
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FHA loans – Government-backed FHA loans are more flexible for condo eligibility.
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VA loans – Loans backed by the VA may be possible if you’re a veteran or service member.
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Family loans – Borrowing from family could provide flexible terms and rates.
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Private lenders – Hard money and portfolio loans offer less restrictive guidelines.
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All-cash purchase – Paying 100% in cash eliminates financing challenges.
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Lease-to-own agreements – Gradually buying from the landlord over time is an alternative.
This can help open up possibilities beyond standard mortgages.
Tips for Minimizing Resale Risks with Non-Warrantable Condos
If you’re concerned about selling a non-warrantable condo later, keep these tips in mind:
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Review the condo documents to understand restrictions on sales.
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Avoid units with short-term rental or other use restrictions.
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Consider new construction projects that may eventually meet Fannie Mae guidelines.
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Look for condos with high owner-occupancy rates.
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Try to purchase a unit for at least 20% less than comparable properties to build in value cushion.
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Get involved in the HOA board to advocate for warrantable guidelines.
Though non-warrantable condos carry higher risks and costs, they can still make good homes and investments in the right circumstances. Just go in eyes wide open.
The Bottom Line
Buying and financing a non-warrantable condo brings unique challenges. But with a strategic approach, it’s possible to secure competitive mortgage rates, terms and financing. Understanding the risks and seeking out knowledgeable lenders is key to getting the best non-warrantable condo loan for your needs and budget.
Non warrantable condo lender terms
Following are the general loan terms for non-warrantable condo financing:
Non-warrantable loans are available for both purchase and refinance transactions.
Purchase loans involve acquiring a non-warrantable condo through a loan given by the alternative lender.
Refinances, on the other hand, mean that the borrower takes out a new loan to replace their old non warrantable condo mortgage. This is often done to avail of better loan terms—lower non warrantable mortgage rates or longer repayment period. For condominiums, this may also be done when the property of interest shifts from being non-warrantable to a warrantable one.
There are several reasons why a non-warrantable condominium may eventually become warrantable. For example, if it used to allow short-term rentals but no longer does, then it may transition to becoming warrantable. When this happens, you may be able to refinance your loan by paying the old mortgage with a new and better one with a lower interest rate.
For non-warrantable condominiums, the loan amount can go as high as $3 to $5 million on a case-by-case basis.
In terms of LTV, lenders understandably offer lower LTVs for a non-warrantable versus a warrantable condo. For example, if a lender offers up to 75 to 80% LTV for warrantable condos, they would offer only up to 70% LTV for non-warrantable condos.
Non warrantable condo loan rates are typically higher for these types of properties since they are riskier than ordinary units. For example, as compared to warrantable condos, lenders may charge a premium of about .25 to .375 that gets added to the rate for non-warrantable condos.
Through higher non-warrantable condo loans rates, the lender receives higher monthly payments from you, which helps offset their risk.
The specific rates vary from lender to lender, so if you have the time, it is recommended that you check your options and pick the best one.
What makes a condo non-warrantable?
The specific guidelines vary, but in broad strokes, warrantable condos must have these general characteristics:
- A single person or entity does not own a large percentage of the units;
- The majority of the units are owner-occupied;
- It does not allow short-term rentals;
- There is adequate insurance coverage to protect the project from unexpected losses;
- There are sufficient budget reserves for replacements for items such as elevators or repairs;
- There is a low percentage of unit owners delinquent in their homeowner association (HOA) assessment fees;
- No fraud has been committed by officers of the HOA; and
- There is no serious litigation by or against the HOA that could result in costly legal fees.
If a project fails to satisfy any of the above requirements, your unit of interest is deemed non-warrantable. For example, if construction is not complete yet, the project is still owned by the developer; hence, failing the requirement that a single person or entity does not own a large percentage of the units.
Financing a Non-Warrantable Condominium
FAQ
Why are non-warrantable condos risky?
Can you refinance a non-warrantable condo loan?
Can you do an FHA loan on a non-warrantable condo?
Are interest rates higher for a condo?
What is a non-warrantable condo loan?
A non-warrantable condo loan is a type of mortgage that doesn’t meet the strict guidelines set by Fannie Mae and Freddie Mac, government-sponsored agencies that purchase mortgages in the U.S.
Can you finance a non-warrantable condo?
Fortunately, you can finance a non-warrantable condo if you find a lender that offers portfolio loans. A portfolio loan is a mortgage the lender issues and holds until the loan is paid off instead of reselling into the secondary mortgage market. If you’ve got your heart set on a specific non-warrantable condo, a mortgage loan can help.
What type of mortgage is available to a non-warrantable condo?
The type of mortgage typically available to a non-warrantable condo is a portfolio loan, which is not repackaged and sold on the secondary market, but kept by the initial lender as part of its investment portfolio. Less desirable rates.
Which lenders offer non-warrantable condo loans?
Several reputable lenders offer non-warrantable condo loans, including Northpointe Bank, Mortgage Depot, First National Bank of America, Fidelity, Blue Water Mortgage, North Star Funding, and First Heritage Mortgage. Purchasing a non-warrantable condo is a viable option, provided you are aware of the associated risks.