Before I go into non-warrantable condo financing, let me disclose to you something important:
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What Are Non-Warrantable Condos?
You might not know any of the conventional mortgage condo requirements that exist, but I’m sure you know they do. The biggest purchasers of condo mortgage loans are Freddie Mac and Fannie Mae. Non-warrantable condos are condos located in projects that do not meet these two entities requirements for condos.
Getting Non-Warrantable Condo Financing
There are two ways of getting financing for a non-warrantable condo:
- Fix whatever is causing the problem. Logical, seems simple but is is next to impossible. There is not enough time between condo offer acceptance and mortgage contingency. It is very hard even if you have more time.
- Find a lender that will lend against such condos.
I will go into how to find a lender for non-warrantable condos shortly. First, a bit about fixing non-warrantability issues.
One of the most common causes condos are not warrantable is the budget. Budgets must call for less than 10% or more of revenue to go into the reserves fund.
This one is fixed with a reserve study… Sometimes, condo associations have so much money in the reserve fund they stop adding to it… Sometimes, one already exists and, then, you your condo is warrantable, you can get a regular conforming, conventional loan.
If one does not exist, you can order one.. assuming time allows it.
Should you be wanting to finance a condo about the time the association is creating the new budget, you can suggest to them to make one that has 10% of income go to the reserve fund. Of course, the bigger the association, the less power your vote has. But even in small associations, you might not be successful.
And, of course, if you’re not an owner, you’ll convince no one.
The other rules are much harder to fix.
Choosing a Non-Warrantable Condo Lender
One of the reasons choosing a lender for a non-warrantable condo is that there’s not that many of them.
The other reason is that condos can be non-warrantable for 15 reasons but lenders find only one or two, usually, to be acceptable.
Let me give you some examples.
You can find a lender that advertises they do non-warrantable condos but only if the non-warrantability is caused by the 10% transfer to reserves. Then, some of them will want at least 8% to go to reserves. Some will want 5%. If you’re dealing with a project where 6% goes to reserves, the first one will do you no good.
Some lenders do not mind that there are too many rental units in the project. But lenders do not accept just any percentage over the limit. Some are fine with a bit of excess, some with a bit more, others can go to 100% non-owner occupied units.
Of course, your condo might be in a project that’s being sued for a lot of money. If that’s the case, no lender will lend against your unit.
In other words, you must know all the reasons a condo is non-warrantable and locate a lender that is fine with your reason(s).
Mortgage brokers come in handy with this type of loans. They tend to be working with one or two wholesale lenders that accept non-warrantable condos.
The issue with mortgage brokers is that they might not actually have a lender for your particular type of non-warrantability even if they say they do.
That’s because they are sure they will find one. And, most likely they will. But it’s not guaranteed. Plus, it will take time. So, be prepared to wait. (Hint: it’s stressful.).
To be a smart mortgage loan shopper, you should also try small banks in the neighborhood of the condo, and credit unions. You are, specifically, looking for outfits that do not sell their loans. Or not all of them. They’re called portfolio lenders and they set the rules. So, if you find one that says they do non-warrantable condos like your, you found a lender that does non-warrantable condos like yours.