What a warrantable condo is
A warrantable condominium is a unit in a building that meets the criteria Fannie Mae and Freddie Mac set for the loans they buy. The criteria are about the project, not the unit: the share of units that are owner-occupied, the share owned by any one investor, the share of the building that is commercial, whether construction is complete and the developer has handed control to the owners, whether the association is in litigation, whether it holds adequate reserves and carries the required insurance, and whether short term rentals are allowed. A building that passes is warrantable, its units qualify for conventional financing, and its buyers have the whole mortgage market to choose from.
What non-warrantable means
A building that fails one or more of those tests is non-warrantable. The agencies will not buy loans on its units, so the lenders that sell to the agencies will not make them, and the buyer’s choices narrow to lenders that keep loans on their own books or sell them to private investors. The unit may be new, well built and well located; the building’s ownership mix or its paperwork decides.
Common examples
- Investor concentration. One owner holds more than the allowed share of the units, common in buildings a developer or a fund partly retained.
- High rental share. Too few owner-occupants, common in resort areas and near universities.
- New or unfinished projects. The building is still under construction, the developer still controls the association, or fewer than the required share of units has sold.
- Litigation. The association is suing the developer over construction defects, or is being sued.
- Commercial space. Ground-floor retail or offices above the allowed share of the building’s square footage, common in urban mixed-use projects.
- Short term rentals. The building operates or allows nightly rentals, which is common in resort condos and disqualifying for the agencies.
- Reserves and insurance. An association that funds too little reserve or carries too little insurance.
- Condotels and fractional projects. Buildings run as hotels, with front desks and rental programs.
How buyers find out
Usually late. A conventional lender orders the association questionnaire after the offer is accepted, the answers arrive in week two or three, and the file is declined in week four with the deposit at risk and the seller unhappy. The better sequence is to ask the association for the questionnaire, the budget, the reserve study, the insurance certificate and the rental and investor percentages before the offer, or to ask a lender to review the building first. A day of diligence before the offer saves a month afterwards.
Financing challenges
The non-warrantable label does three things to a buyer. It removes the cheapest financing. It shrinks the pool of lenders to portfolio banks, non-QM lenders and private lenders, each with its own rules. And it lowers the price, because every other buyer faces the same problem, which is the opportunity for the investor who has the loan already arranged.
Hard money loans
What and why
A hard money bridge on a non-warrantable condo is a short-term loan underwritten on the unit’s value, the equity and the exit, with the building’s warrantability irrelevant because the loan is never sold to an agency. Investors use it to buy fast in a building where conventional buyers cannot compete, to close a purchase after a conventional lender has declined late, and to refinance a unit whose loan has matured.
Benefits and drawbacks
The benefits are speed, certainty and indifference to the building’s paperwork: Loan Goat’s bridge loan lists condo and townhome among its property types with terms of one or two years, LTV up to 75%, loans from $150,000 to $25,000,000, rates from 9.00% to 13.00%, no borrower experience required and no prepayment penalties, and a clean file can close in as quickly as 3 days. The drawbacks are cost and term: a bridge is priced above a term loan and has to be repaid within its term, so the exit, a sale or a refinance into a DSCR or non-QM loan, is agreed before funding.
Business purpose
A hard money bridge is a business purpose loan on a non-owner occupied unit. A buyer who intends to live in the condo is asking for a consumer purpose loan, which follows different rules and is covered below.
Non-QM loans
What and why
A non-QM loan is a term loan made outside the agency rules and sold to private investors or held on a portfolio, so a non-warrantable building is a pricing question rather than a decline. For an investor, the rental DSCR loan is the answer: non warrantable condos permitted is a published benefit, alongside short term rental income permitted, DTI not calculated, first time investor OK and no prepayment penalty, with 5, 7, 30 and 40 year fixed terms, LTV up to 80% and rates from 6.50% on the Non-QM tier on non owner occupied condo and townhome property.
Benefits and drawbacks
The benefit is a thirty-year loan on a building the agencies rejected, at a rate above conventional but far below a bridge, qualified on the unit’s rent rather than the borrower’s income. The drawback is that leverage on a non-warrantable unit is decided per file, and the building’s problems (litigation, reserves, a condotel structure) can still limit it. The rate and the LTV a specific unit supports are quoted per deal, and every published figure is subject to change and not a commitment to lend.
Consumer-purpose financing
An owner-occupant buying a non-warrantable condo needs a consumer purpose loan, which means a portfolio bank, a credit union or a non-QM lender with an owner-occupied program, underwritten to the ability-to-repay rules on the borrower’s income or on bank statements. Loan Goat’s bank statement and P&L-only programs publish owner occupied and not owner occupied occupancy on condo and townhome property; whether they can be written on a specific non-warrantable building is confirmed per file.
Applying
Send the address, the unit, the purchase contract or the current loan, the association questionnaire and documents if you have them, and the plan (rent, resell or occupy). For an investor bridge the process is Loan Goat’s standard four steps and a close in 5-7 days; for a DSCR or owner-occupied loan the building review runs alongside the file. Rates and pricing are subject to change without notice; the pricing guide explains what moves a quote.
Where non-warrantable condos fit
- Rental property loans for the DSCR loan that permits non-warrantable condos.
- Bridge loans for the fast purchase or the late-decline rescue.
- Multi-family hard money loans for the investor buying several units in one building.
- Vacation rental for the resort condo that fails the review because it rents by the night.
The building’s paperwork is the seller’s problem and the conventional lender’s problem. With the right loan, it is the investor’s discount.
