In order to understand what differentiates non-warrantable in condo financing compared with warrantable, we shall gov over the following.
For a condo to be warrantable, there’s is a specific set of guidelines that lenders check-off in order to ascertain if a traditional loan can be originated on these residences. When a condominium falls into all of their guidelines it’s considered warrantable. Such condominiums usually have a high percentage of units owner occupied, the HOA is financially sound, adequate insurance coverage and other items.
However, the other type of condos known as non-warrantable do not comply with one or more of the lenders set of requirements. This non-warrantable classification could be the result of multiple factors such as large share of renters in the complex and an ongoing lawsuit against the HOA. When this is present, securing conventional financing becomes tougher although not impossible.
Issues common with non-warrantable condo financing
Now that we have defined what sets non-warrantables apart from their warrantable counterparts let’s delve into some common obstacles faced when trying to finance these unique properties:
1. Limited Mortgage Options: Non-warrantables generally, don’t fit within the normal underwriting rules adopted by Fannie Mae and Freddie Mac. This leads to a situation where it becomes difficult for borrowers to secure mortgages, and they have to look elsewhere. Your financing options are reduced by approximately 70-percent.
2. Higher Interest Rates: Borrowers will most likely have to pay higher interest rates or large down payments as non-warrantable condos are perceived as having higher risks for lenders.
3. Potential Delays: Getting approval from the lender for a non-warrantable condo might take a few more days as compared to a warrantable property. However, financing non-warrantables requires exercising patience and adequate planning to avoid mistakes during the process.
Having discussed some of the challenges associated with non-warrantable condo financing, let’s move on.
Distinguishing Warrantable and Non-Warrantable condos
The warrantability also has an important role that it plays while on financing a condominium. Lenders look at whether a condo complies with their underwriting rules.
Some conditions include owner occupancy rate, financial stability in the HOA, applicable insurance coverage, the unit’s square footage, and structural defects. If a condo meets such requirements, it is considered “warrantable” and can be used as collateral for traditional mortgage loans.
Nonetheless, there are instances where condos do not satisfy all the lender’s condo requirements, making them non-warrantable. Examples of these classifications include a high concentration of renters within a complex and ongoing litigation against the HOA.
However, it becomes a challenge to find lenders who will offer financing in case of non-warrantable condos. The properties normally fail under conventional lending rules such as from Fannie Mae and Freddie Mac. Consequently, borrowers looking for conventional mortgages may end up being left with limited choices and forced to look a bit harder for other alternatives.
The majority of buyers who purchase non-warrantable condos often encounter the problem of finding specialized lenders. Such a lender is aware of the complications at hand and has customized loan programs meant for prospective borrowers.
Buyers will discover they come with higher interest rates for a non-warrantable condo loan as compared to those of the warrantable condo because of the risk perceptions that accompany these properties. Borrowers who are informed beforehand will know what’s involved.
Although borrowing money for non-warrantable condos comes with slightly differences, one should not give up if the property is what you want. This is a segmented area in housing market where home ownership dreams can be achieved after working with experts who understand this type of real estate financing.
Common Challenges Overcome with Non-Warrantable Condo Financing
Financing non-warrantable condos poses small challenges. It’s mostly because such properties don’t comply with Fannie Mae as well as Freddie Mac criteria and therefore borrower are not approved for a traditional loan.
A common problem involves locating a lender that will originate a non-warrantable condo. Some traditional lenders avoid making investments in these properties because of previously mentioned factors above. Therefore, borrowers need to search for specialized lenders for a loan on these types of condos or find an experienced mortgage broker that is familiar with loans on these types of condos.
What we’ve found “some” credit unions will lend on a non-warrantable condo with a low loan-to-value ratio (usually under 70) while some mortgage brokers will have around ten or more loan products for non-warrantable condos. Rates for a non-warrantable condo will be approximately one to one and a half times higher than if it were a warrantable condo. It’s likely offered through a non-QM mortgage program.
Furthermore, lenders are very likely to condition for larger down-payments of 10- to 15-percent or more and tougher qualifications in terms of maximum DTI and HOA approval.
An appraisal for a non-warrantable condo may also bring on some challenges. Of course, the appraiser will estimate the property’s market value as usual, taking into account comparative sales inside the building or other like condo properties situated nearby. But they’ll also need information from the HOA such as the percentage of owners who live in the building or have tenants in their unit, effective age of the roof, etc.
Anyone buying a condo that is not warrantable should assess their finances well and consider the problems they are likely to encounter while getting their funds available. However, it is always better to work together with experienced specialists in the area of lending, that will assist you to overcome these obstacles and put forth additional options for each loan scenario.
Types of available mortgages for non-warrantable condos
Certain borrowers could have serious problems when financing a non-warrantable condo. Nonetheless, there are some available options when it comes to mortgages that can overcome these condo financing issues.
For example, you can work with niche lenders who have expertise in funding non-warrantable condos. Such lenders have a clear understanding of these type of properties and hence provide more lenient loan terms than regular lenders like a bank or credit union would do. For instance, while some banks might demand a higher down payment or charge a bit higher interest rate, they could offer financing options that are actually not readily available.
In some cases, someone could use other options such as portfolio loans or private lenders. These are simply mortgages that not bought in the secondary market. As such, this creates some wiggle room for relaxed underwriting guidelines that can be a solution to finance non-warrantable condominiums.
Some government-backed mortgages including FHA and VA loans may also work for certain kind of non-warrantable condos like if when you bought the condo it was warrantable and something changed after the purchase. You may want to get some guidance from an experienced lender/mortgage broker.
Though non-warrantable condos may not be financed as easy as a warrantable condo by lenders, there are various ways to obtain a mortgage loan. Specialized lenders, portfolio loans or private lending, and mortgage brokers are some of the best channels to contact if you want to consider in order to secure a loan and purchase your property.
Do Non-US citizens qualify for a mortgage for a non-warrantable condo?
No matter if you’re a foreign citizen borrower or American, they will face specific conditions in financing a non-warrantable condo. That being said, different mortgage programs are available for these kinds of properties and not difficult to get. Knowing the lender’s requirements can help a borrower to make the process better.
Another point of interest is the possibility of obtaining a mortgage for a non-warrantable condo by non-US citizens. Yes, but it can be quite complex as compared to the US Citizens or Permanent Residents. For buyers who are not US citizens, these individuals will mostly be required to provide additional documents to verify their income and their legal entry within the country.
Moreover, mortgage lenders will still review and analyze their credit history, amount of down payment, and personal income versus debt ratios. In such cases, individuals falling under this category are encouraged to seek help from seasoned mortgage loan companies or lenders well-versed in financing deals involving non-citizens.
Financing for this type of condo seem like an uphill battle to many at the first but it really isn’t if you know who to contact. Through diligent preparation, comprehensive market research coupled with advice from experienced real estate professionals in the specific neighborhood or subdivision, prospective borrowers are able to obtain the right loan for them.