Non-warrantable condominiums are units that fail to meet the lending standards of government-sponsored enterprises–Fannie Mae and Freddie Mac–or the government agencies FHA and VA. These properties are not eligible for traditional loans; thus, making the financing options more limited.
What makes a condo non-warrantable?
The specific guidelines vary, but in broad strokes, warrantable condos must have these general characteristics:
- A single person or entity does not own a large percentage of the units;
- The majority of the units are owner-occupied;
- It does not allow short-term rentals;
- There is adequate insurance coverage to protect the project from unexpected losses;
- There are sufficient budget reserves for replacements for items such as elevators or repairs;
- There is a low percentage of unit owners delinquent in their homeowner association (HOA) assessment fees;
- No fraud has been committed by officers of the HOA; and
- There is no serious litigation by or against the HOA that could result in costly legal fees.
If a project fails to satisfy any of the above requirements, your unit of interest is deemed non-warrantable. For example, if construction is not complete yet, the project is still owned by the developer; hence, failing the requirement that a single person or entity does not own a large percentage of the units.