What makes a condo non-warrantable

What “warrantable” means

A condo is called “warrantable” when the building (the project) meets Fannie Mae or Freddie Mac rules, so a lender can sell the loan to them. When it doesn’t, it’s called non-warrantable. That’s about the building, not you or your unit. It can make a standard conventional loan unavailable, even if your credit and income are strong.

Common reasons a building is non-warrantable

From Fannie Mae’s list of ineligible projects (Selling Guide B4-2.1-03). Freddie Mac keeps a similar list in its Guide (Section 5701.3).

• Operates like a hotel or motel (condo-hotels, rental desks, daily rentals run like a hotel).
• Too much commercial space: more than 35% of the total space used for nonresidential or commercial purposes.
• One owner holds too many units: for projects with 21 or more units, a single entity owning more than 20%; for 11 to 20 units, more than 2.
• Critical repairs: a failed mandatory inspection, conditions affecting safety or soundness, or unfunded repairs over $10,000 per unit needed within 12 months.
• Litigation involving the association that relates to the building’s safety, structural soundness, habitability or functional use.
• Business income: the association gets more than 10% of its budgeted income from businesses open to the public (a restaurant, for example).
• Mandatory memberships to amenities owned by an outside party, timeshare or fractional ownership, multi-dwelling units under one deed, or an association that’s terminating or insolvent.

Your options in plain English

• Fix or wait. Some problems are temporary: repairs finished and documented, an assessment collected, a lawsuit resolved. Timing your purchase can change the answer.
• Check FHA and VA. They have their own approval lists; a building can fail one agency’s rules and pass another’s. Check the HUD FHA condo search and the VA condo report.
• Lender exceptions. Fannie Mae lets a lender request an exception for a project that has merit but doesn’t meet every rule. It’s case by case and not guaranteed.
• Non-warrantable condo loans. Non-QM and portfolio condo loans are made outside Fannie Mae and Freddie Mac rules, and I offer non-QM options. They usually need a larger down payment and cost more; the building still has to meet that lender’s rules.
• Pay cash or walk away. If the building has serious problems, the best option may be a different building. I’ll tell you plainly.

How to find out early

Ask your agent for the association’s budget, the latest milestone inspection and SIRS, and any special assessments, and send me the building name. I’ll check what the lender will need before you’re deep into a contract. See milestone inspections and SIRS.