Warrantable Condo vs. Non-warrantable Condos

    You may have heard the term Warrantable or Non-Warrantable condo.  Some are confused asto what this means and what constitutes a Warrantable condo vs. a Non-Warrantable condo.  A Warrantable condo simply means that the condominium project in question is eligible to be sold to Fannie Mae or Freddie Mac. A Non-Warrantable condo is not eligible to be sold to Fannie Mae or Freddie Mac.  Therefore most mortgage lenders will not lend on a Non Warrantable condo.  But because Fannie and Freddie will not purchase mortgages secured by Non Warrantable condos, they are considered to be more risky, and thus the interest rate and down payment are typically higher.

    What issues would cause a condo project to be considered Non-Warrantable?  There are a variety of issues that may cause a condo project to be considered Non-Warrantable.  For example, a project that has hotel –like characteristics (condo hotel) would be considered Non Warrantable.  Or a project where one person/entity owns more than 10% of the total units would also be considered Non-Warrantable.   These are only two examples of a Non-Warrantable condo.

    In more general terms, Non-Warrantable Condos are those projects that DO NOT fit into one of the following three classes:

    CLASS I

    1. Developers control of the homeowners association has been turned over to the condo owners

    2. Project is not subject to additional phasing or add-ons which have not yet been completed

    3. All common elements and amenities must be fully installed, completed and in operation

    4. 70% of all units in the entire development must have been sold and or
    legally obligated to close

    5. 70% of all units in the entire development must have been sold to owner
    occupants

    CLASS II

    1. Recent or current condominium conversions (from apartments)

    2. Homeowners association has been controlled by the unit owners (other than the developer) for less than two years

    3. Project is not subject to phasing or add-ons which have not yet been
    completed

    4. All common elements and amenities are fully installed, completed and in
    operation

    5. 70% of the units in the entire development must have been sold and/or
    legally obligated to close

    6. 70% of the units in the entire development must have been sold to owner occupants

    7. No more than 15% of the current unit owners are more than one month
    delinquent in payment of homeowners dues or assessments

    CLASS III

    1. Homeowners Association has been controlled by unit owners (other than developer) for at least one year

    2. Project is not subject to phasing or add-ons

    3. All common amenities are fully installed, completed, and in operation

    4. 90% of the units have been sold (owner-occupancy of at least 60%)