Should you buy a condo that is unwarranted? This is a great question. What exactly does it meant to be unwarranted? “Condo projects and properties which don’t meet Fannie Mae and Freddie Mac warrantability standards are known as non-warrantable. Meaning the financing may be harder to obtain” says Gina Pool-The Mortgage Reports.
“Condo projects and properties which don’t meet Fannie Mae and Freddie Mac warrantability standards are known as non-warrantable.
Non-warrantable condos are more challenging to borrow against.
Typically, a condo is considered warrantable if:
- No single entity owns more than 10% of the units in a project, including the developer
- At least 51% of the units are owner-occupied
- Fewer than 15% of the units are in arrears with their association dues
- There is no litigation in which the homeowners association (HOA) is named
- Commercial space accounts is 25 percent or less of the total building square footage
Because of these rules, some of the common property types which fall into the non-warrantable category include condotels, time shares, fractional ownership properties, and other projects which require owners to join an organization, such as a golf club.
Manufactured housing projects and other developments which are not legally considered real estate are also excluded from warrantability, including house boat and motor home projects.
When you’re buying a condo, one of the first questions you should ask your real estate agent or lender is related to the building’s warrantability.
A warrantable condo will get you access to lower mortgage rates than a non-warrantable condo because warrantable condos are lower risk to the bank.” According to a recent article written by Gina Pool- The Mortgage Reports.
As a buyer it is very important to do your due diligence in determining all the facts about a condo development before making the decision to purchase. You will need to have a detailed conversation with both your agent and lender to make sure you fully understand the risks involved in purchasing an non-warrantable condominium.