What is non-warrantable condominium financing?
- Under Fannie Mae and Freddie Mac’s guidelines, condominiums fall into two general categories: warrantable and non-warrantable.
- Units in low-risk condominium projects are considered “warrantable,” and mortgages secured by such units are eligible to be purchased or backed by Fannie Mae or Freddie Mac.
- However, units in higher-risk buildings (e.g., condos with higher default rates or condos consumed with lawsuits involving the association) are considered “non-warrantable”.
- Fannie Mae and Freddie Mac will not purchase or securitize mortgages secured by units in non-warrantable condo projects.
- Therefore, due to the risk involved, lenders typically impose stricter requirements for non-warrantable condominiums.
Sample loan programs for non-warrantable condominiums
Many lenders will not even consider non-warrantable condominiums to be eligible for their loan programs, but when they do, typical provisions may include:
- Maximum loan-to-value ratio: This can range from around 70% to 80%.
- Maximum loan amount: This can be as high as $5 million on a case-by-case basis.
- Other lender requirements: These miscellaneous terms can vary greatly. For example, some lenders require that only a maximum of 20% of the condominium project can be owned by any single owner/investor entity. (Or, if the project has fewer than ten units, there can be a maximum of two units owned by any single owner/investor entity.) Other lenders will not consider non-warrantable condos that have certain structural deficiencies, certain pending litigation, low homeowner association budget reserves, or a high percentage of units in foreclosure.
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