Warrantable & Non-Warrantable Condo Mortgages
There is confusion about condo financing versus financing for detached single family residences. I suppose this is why buyers and agents ask about the financing differences between these two property types. It really is important to understand what “warrantable” means and how it impacts the condo sale transaction.
What is a “warrantable” condo and does it affect financing?
A warrantable condo satisfies Fannie and Freddie conventional financing guidelines. Loans that satisfy Fannie and Freddie guidelines qualify for purchase and sale on the secondary market. This is important because lenders buy and sell mortgages on the secondary market.
If you are an agent working with buyers interested in condos, make sure you have done the research to determine the warrantability of the condo.
A qualified lender can give you guidance and a condo questionnaire – and the ownership of the condo complex should provide the information for the questionnaire. Once complete, the lender can send it to underwriting for evaluation to determine its warrantability.
Do lenders think condos are more risky than detached homes?
Yes, condos are more risky for a lender than a detached home. The lender on a single unit shares some of the risk for the entire complex. Because of this shared risk items such as liability, fire, foreclosed units, vacant units, and delinquent HOA fees are all risks carried by both the lender and the individual owner. Before the lender will loan money for the condo, the lender does the research necessary to quantify the financial risk of the property.
What happens if the condo is “non-warrantable”?
A full service direct lender, such as Equity Prime, has access to a multitude of financial products. There are products for both warrantable and non-warrantable condos. Since the non-warrantable condo does not satisfy conventional guidelines the cost of financing will show increased risk.
Click on the article linked at the top of this blog for more information. Gina Pogol wrote the article this past July and it appeared in Mortgage Reports.
If you are a buyer looking at condos, make sure you have the warrantability conversation with the agent early in the process. Nothing is more heartbreaking to find the condo of your dreams only to have the financing fall through late in the approval process.
Written by Tom Bonetto, Mortgage Loan Originator