Fannie Mae (FNMA), a United States Government-Sponsored Enterprise (GSE) whose main goal is to provide liquidity to the nation’s mortgage finance system, owns the majority of mortgages in the United States. They have very specific guidelines for single family residences, including condominiums. Condominium projects that do not meet these specific guidelines are classified as “non-warrantable”. Loans for non-warrantable condominiums are not eligible to be sold to Fannie Mae, therefore very few lenders offer programs for them.
To obtain financing on a non-warrantable condominium, one must use a lender that will not sell the loan to Fannie Mae but will either hold on to the loan in a portfolio or sell to an investor who will also hold on to the loan in a portfolio. The reason there are very few lenders for non-warrantable condominiums is that most lenders, including banks, mortgage banks, and wholesale lenders, want to have the option of being able to sell their loans in the secondary market.
There are several companies that offer loans for non-warrantable condominiums, most offering only Adjustable-Rate Mortgages (ARM’s). Conventional 30-year fixed mortgages are also available, but on a limited basis, and through only a handful of originators. Loan guidelines and limits are set every year by Fannie Mae and are “county” specific. To view a list of current loan limits, log on to https://www.fanniemae.com/singlefamily/loan-limits#
The ultimate challenge in financing a condominium that is non-warrantable is choosing the right lender. Many people prefer to use the banks and mortgage companies they have existing relationships with. The problem is these companies have little to no knowledge of how to process and fund the special type of loan needed. The best approach is to be up front with your lender and explain to them the situation. Many reputable lenders will provide you a referral to a company that is experienced in non-warrantable condominium financing. If you are a homeowner and ready to sell your unit, make sure you choose a Realtor that has experience in your community and disclose any issue to them up front. Realtors that have previous experience in communities that are non-warrantable may have an existing relationship with a lender that has already completed a loan in the community.
The below list contains various scenarios in which Fannie Mae or Freddie Mac would classify the condominium as “non-warrantable”. For a condominium to be considered “warrantable”, none of the items can exist within a particular condominium project.
- The HOA is involved in litigation (pre or formal) mediation or arbitration.
- The project’s master insurance does not meet FNMA minimum standards.
- There is current or pending special assessments.
- There is current deferred maintenance that has not been rectified.
- Project is new and does not have the required % of units presold or closed.
- There is a high concentration of renters vs. owners in a project.
- There is a higher percentage of homeowners’ delinquent on their HOA dues.
- The HOA is not budgeting 10% of income to reserves.
- One entity owns more than 20% of the units in a project.
- The project has more than 35% commercial aspect.
- The property is a co-op, condo-tel, or hotel residence.
- The complex has a deed restriction (BMR unit, low-income designation, private transfer fees).