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.
Condo loan approval is more difficult than it is for a single-family home. Its process is lengthier and more complicated because aside from evaluating your creditworthiness as a borrower, lenders also need to verify several aspects of the condo project.
For example, traditional banks will only lend money to purchase or refinance “warrantable condos” that meet Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), or the Department of Veterans Affairs (VA)’s requirements while avoiding what is considered “non-warrantable condominiums.”
Despite these condo financing problems, it is still possible to obtain a loan, even for non-warrantable condos, including a pre-construction condo in Miami.
We can navigate you through the process.
Non-warrantable condominiums fail to meet the lending criteria of the government-sponsored enterprises (Fannie Mae and Freddie Mac) or the government agencies (FHA and VA). Because they cannot sell the loans on the secondary market to Fannie Mae, etc., traditional lenders shy away from non-warrantable condos. Thus, financing options are limited.
The specific guidelines vary, but in broad strokes, warrantable condos must have these general characteristics:
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.
One of the most common reasons rendering a condominium non-warrantable is the existence of litigation involving the homeowner’s association, the project owner, or the developer. If the litigation relates to certain issues, such as the structural soundness, safety, habitability, and functional use of the condo, the condo may be classified as non-warrantable.
However, if the litigation is considered “minor” and satisfies at least one of the following criteria, the condo can still be classified as warrantable:
Know the details of the pending litigation associated with the condo project. Assess if the litigation involves any of the four areas of concern: habitability, safety, structural soundness, or functional use. If the pending litigation does not fall under these classifications, you have a better chance of obtaining conventional financing. You just have to provide the lender enough evidence that the litigation is “minor.”
A practical way to determine if a condo is non-warrantable or warrantable is to do an online search. There are online lists that you can check to see if the condominium is approved by the FHA, the VA, Fannie Mae, or Freddie Mac.
If your condominium is on these lists as approved, then it is warrantable, and you are therefore eligible to finance the property through traditional loans.
Unfortunately, in some areas, only a very small percentage of condominiums is deemed as warrantable. For instance, only a small percentage of the condominiums available in Miami-Dade and Broward Counties have been approved for financing by the FHA and Fannie Mae.
According to the Miami Association of REALTORS, the approval percentage in Miami is less than 1%, compared to a nationwide approval rate of over 30%. As of the 22nd of November 2021, only five and ten condominium projects were deemed warrantable by Fannie Mae in Miami and Orlando, respectively.
These figures call for innovative financing solutions, as traditional lenders do not lend on condos of this type. We discuss financing for unapproved condominiums further below.
If your research reveals that your condominium is not approved according to the databases, you have three options.
If the condo you are aspiring for is not on the list of warrantable condos, try looking at those projects on the list. Consider the following characteristics of a warrantable condo:
This option comes with advantages, as non-warrantable condos can be a risky investment. For example, if too many units remain unoccupied, the project may become insolvent. Ultimately, you do not have complete control over the building as a unit owner. Also, down the road, you may run into difficulty selling your condo. Your target buyers may be limited to those who can purchase in cash. These limitations are all avoided when you pick a warrantable unit instead.
Similarly, shifting your interest to a warrantable condo gives you access to more loan options. Whatever your purpose is for wanting to finance the property, it would give you peace of mind to know that the property is financially healthy.
If the first option doesn’t work for you, then you might want to try getting the unapproved condominium approved by following these steps:
Now, what happens if the second option still would not work, and your heart and mind are really set on that specific condo unit? The only option left for you is to find nonwarrantable condo lenders in Florida such as non-QM lenders. These lenders are willing to take on a higher level of risk.
Mortgage financing is more complicated for individuals seeking to purchase or refinance a non-warrantable condo in Florida. There are fewer programs available for these properties, mortgage lenders scrutinize your application more closely, and both you and your future homeowner’s association must follow a set of underwriting requirements. The lender, as a matter of fact, needs to ensure that the property they are covering is a good risk. And, while mortgages backed by the FHA, VA, Fannie Mae, and Freddie Mac dominate the market, there are also lots of other alternative non-warrantable condo lenders in Florida offering non-warrantable condo mortgages.
Save time by leveraging our deep connections with alternative non-warrantable condo lenders.
This non warrantable condo financing section focuses on Option #3–finding a non-warrantable condo lender.
To purchase or refinance your unit, you can opt for an alternative lender offering to finance properties like yours.
One such alternative lender is a “portfolio lender.” Traditional banks sell their loans to Fannie Mae and Freddie Mac, while portfolio lenders keep their loans in their own portfolio, so they are not worried if they can’t sell your loan to the secondary mortgage market.
Another type of alternative lender is a specialist in non-qualified mortgages (non-QM) or loans that do not meet the Consumer Financial Protection Bureau’s standard of a qualified mortgage. An example of non-QM loans is non-warrantable condo loans. Like the portfolio lenders, they are not concerned if they cannot sell your condo loan to the FHA, VA, Freddie Mac, or Fannie Mae because they can sell it to a non-government backed secondary market instead.
While these creative loan programs are flexible to accommodate most of your non-warrantable condo loan requirements, there are no one-size-fits-all loan terms available for all the borrowers. Following are some example loan terms for non-warrantable condo financing.
Here are the general loan terms for non-warrantable condo financing:
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.
Yes, you can avail of a jumbo loan even if your property is non-warrantable. However, it is best to understand what it is and when it is best used before applying for a jumbo loan.
A jumbo loan is considered a “non-conforming” loan typically applied for when purchasing or refinancing luxury homes, whether a single-family residence or condominium. It is considered non-conforming because the amount involved exceeds the limits set by the Federal Housing Finance Agency and cannot be backed by Fannie Mae or Freddie Mac.
Given the absence of the Fannie and Freddie backing plus the higher amount of money involved, a jumbo loan brings more risks to lenders, so they tend to impose stricter requirements.
High-end condominiums are not exempt from being non-warrantable. With the risk a luxury condominium poses plus the high risk involved in a jumbo loan, obtaining a mortgage for a non-warrantable high-end condo makes financing your condo so much trickier; it doubles the risks non warrantable mortgage lenders are exposed to.
The limits for a jumbo loan varies by county and can change every year. Check the current limits in our jumbo loans in Florida guide or check out the current conforming loan limits at the Federal Housing Finance Agency’s website.
When you exceed the conforming loan limits, you can work with lenders on what appropriate jumbo loan programs are best for you.
Watch the video below to see how we helped our client, a green card holder from Argentina, obtain a jumbo loan for a new construction non-warrantable condo.
We have years of experience to help guide you.
Yes. If you are a non-U.S. citizen, you may apply for a non warrantable loan in Florida to acquire or refinance non-warrantable condos.
But first, let us define what a non-U.S. citizen is.
Noncitizens in the United States are individuals:
These noncitizens may be categorized into three subcategories: foreign nationals, permanent residents, and temporary residents.
These are non-resident aliens (NRA), citizens in another country whose primary residence is located outside U.S. borders. As aliens, they do not qualify for conventional mortgage loans, but creative mortgage solutions are available to them through alternative lenders.
Also referred to as green card holders, they share most rights, responsibilities, and benefits with U.S. citizens. They are eligible for loans that U.S. citizens can access with the best terms and non warrantable condo mortgage rates.
These are foreign nationals granted provisional visas for temporary stay in the U.S. for pre-defined purposes. Although they qualify for U.S. home loans, they face more requirements and restrictions depending on the type of visa they hold.
Florida remains to be a favorite among foreign buyers when purchasing a home in the U.S.
According to the Miami Association of Realtors, foreign buyers bought a total of $5.1 billion worth of residential properties in South Florida in 2021. Of these transactions, 63% were paid in cash, 24% higher than the average of U.S. homebuyers paying in cash. These numbers suggest foreign nationals lack knowledge or access to mortgage financing. Interestingly, the report also showed a preference of foreign buyers for condominiums (61%). Miami-Dade County registered the most number of foreign buyers.
The 37% of foreign buyers who bought their residential property are among the noncitizens who are finding it more difficult to purchase real estate in cash, mainly because of a strong dollar and increasing prices of residential units. This difficulty leads to them choosing to finance their real estate purchase.
However, financing real estate for noncitizens can be complicated.
A non-U.S. citizen wanting to finance a non-warrantable condo faces a challenge, as they face the burden of proving their creditworthiness and that of the non-warrantable condo. However, financing this property type despite your citizenship is still possible.
Engage the services of an experienced mortgage broker to help you negotiate the complex mortgage approval process.
Discover how we helped a foreign national get approved for a non-warrantable condo in our guide on how to invest in Florida property as a foreign national.
Yes. If you are self-employed, you can purchase or refinance a non-warrantable condo. Several innovative lending programs are available for self-employed individuals. One of these niche programs is the No Ratio Program, otherwise known as the No Documentation Program, offered by non-QM lenders.
The No Ratio Program applies to all properties, including non-warrantable condos. However, these properties must be used either as a primary residence or a secondary/vacation home to qualify for the program.
If you intend the purchase the condo for investment, you may take advantage of another non-QM loan program, the Debt Service Coverage Ratio (DSCR) program.
The flexibility that the No Ratio and DSCR programs offer earns them places in the top 6 mortgage loans for self-employed borrowers. You should check each of these programs’ loan terms to see which one suits your requirements best—check out our home loans without tax returns guide for more info!
Owning a condo unit is an enticing option if you want to have your own primary residence, a secondary home, a vacation place, or an investment. However, unless you have the cash to purchase one, you will need a condo loan.
Besides proving yourself to be creditworthy, you need to prove that the condo project where your desired unit belongs is a low-risk property, and therefore, warrantable. Setting your sights on a luxury condo is no different. A condo project assessed to be non-warrantable can put a damper on your dream of owning a condo unit.
Like all other problems, there is a solution, whether you are a U.S. citizen, a self-employed individual, or a non-U.S. citizen. Just remember, you don’t have to do it all on your own. A mortgage broker in Miami can lend you a hand and get that condo unit of your dreams.
