Understanding Non-Warrantable Condos and How to Secure a Mortgage for One

May 10, 2023

Key Takeaways:

  1. There are two kinds of condos: warrantable and non-warrantable. Conventional lenders often do not offer non-warrantable condo loans. 
  2. There are many ways to check to see if a condo is non-warrantable. Before starting the mortgage loan process, check if a condo is warrantable or non-warrantable. 
  3. Getting a mortgage for a non-warrantable condo can be challenging, but there are specialty mortgage lenders that can help you.

There are many things to love about condos. 

  1. They are often located in desirable social hotspots. 
  2. They typically come with lower price tags than single-family homes 
  3. They often offer amenities such as pools, movie theaters, game rooms, and outdoor activity spaces. 

While there are many advantages to buying a condo, there are also some drawbacks. One significant drawback is obtaining a mortgage. There are two types of condos: warrantable and non-warrantable. Unfortunately, conventional mortgage lenders may not provide mortgages for non-warrantable condos.

But do not let this stop you or discourage you from getting a condo loan, more importantly, a non-warrantable one. Specialty lenders, like Texas Regional Bank, can help you with all your condo mortgage needs.

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Before selecting a condo, it’s important to understand the difference between warrantable and non-warrantable condos. Educating yourself on this topic can help you make an informed decision. Get pre-approval from a mortgage lender beforehand, so you can ask important questions like “Do you offer non-warrantable condo loans?”

What are Non-Warrantable Condos?

A non-warrantable condo is any condo that does not meet conventional mortgage standards; examples include condos with low owner occupancy, timeshares, membership requirements, or incomplete developments.

Guidelines for Warrantable and Non-Warrantable Condos.

Fannie Mae and Freddie Mac are government-sponsored mortgage programs that set the requirements to classify a condo as warrantable or non-warrantable. 

Fannie Mae and Freddie Mac buy home mortgages from banks, credit unions and other mortgage originators. They either keep the mortgages, group them, or sell them to investors as investments. Since non-warrantable condos are considered risky investments by financial institutions, Fannie Mae and Freddie Mac will not buy them.

How to Find out if a Condo is Non-Warrantable or Warrantable. 

  1. Check the condo lists provided by  FHA and VA. If a condo is on the list, it is considered warrantable, and you can get a conventional mortgage. But if it’s not on the list, it is probably non-warrantable, and you will need to find a specialty mortgage lender.
  2. Your mortgage lender will send a condominium questionnaire to the association during the mortgage application process. Depending on the association’s answers, the condo will be deemed warrantable or non-warrantable. 
  3. If you are working with an experienced realtor, they should tell you if a condo is warrantable or non-warrantable.

Getting a Mortgage for a Non-Warrantable Condo.

A community bank is a good option when finding a non-warrantable condo mortgage lender. Community banks usually hold on to their mortgages instead of selling them to Fannie Mae and Freddie Mac. This means they have more flexibility in offering non-warrantable condo mortgages.

Challenges of Getting a Non-Warrantable Condo Mortgage.

There are several reasons why non-warrantable condos are hard to finance: 

  1. Timeshares: Timeshares can complicate the financing processing as they may have different ownership structures and usage arrangements. 
  2. Incomplete Development: Incomplete developments make it riskier for lenders to offer to finance since the property may not be completed on schedule
  3. Low Owner-Occupancy: Low Owner-Occupancy is a red flag for lenders. This means most of the units are used as short-term rental/investment properties. This affects the financial stability and management of the condo association.
  4. Assisted Living or Care Residence: Condos located in a permanent care or assisted living residence, create additional challenges for lenders since the property’s usage may not conform to traditional mortgage lending standards.
  5. Membership Requirements: The condo property may require that you join a specific organization, such as a golf club. This makes the financing process harder as it may limit the potential buyers. 

These factors are why conventional lenders hesitate to provide non-warrantable condo mortgages. 

Requirements for a Non-Warrantable Condo Mortgage:

  1. Before considering a non-warrantable condo mortgage, you should ensure you have the credit score to qualify. The minimum credit score you need to be eligible for a non-warrantable condo mortgage is 620.
  2. The down payment required for a non-warrantable condo mortgage is 5%, so ensure you know how much you need to save.

Useful Tools

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Annual Percentage Rate (APR) Calculator

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Bottom Line

To avoid any surprises during the mortgage application process, it’s important to do your due diligence when considering purchasing a condo. Be sure to research the property and double-check the Fannie Mae and Freddie Mac guideline list before starting the application process. This will help you avoid any obstacles in securing a mortgage.

Getting a mortgage for a non-warrantable condo can be challenging, but there are specialty mortgage lenders, like Texas Regional Bank, that can help you.

Meet with one of our mortgage lenders today to learn more about our non-warrantable condo loans. Visit our website, Mortgage – Home Loans & Refinance, from Texas Regional Bank, for more information about our loan products. 

Texas Regional Bank Mortgage, NMLS Number 804865. All loans subject to approval, including credit approval. Some Restrictions may apply. Texas Regional Bank Mortgage may change the products, services, and other information described on this site at any time. Texas Regional Bank Mortgage does business as TRB Mortgage in the State of Texas.

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Texas Regional Bank

Texas Regional Bank is a privately owned institution that was founded in South Texas with the goal to bring a locally-owned, relationship style bank back to the communities we serve. TRB is committed to building a relationship with our customers by providing exceptional customer service, financial products, and mobile and online banking.