Condo loans generally come with a demanding series of rules. This tends to cause the arduous process of getting one to be both stressful and lengthy for condo buyers. Purchasing a condo is much like buying a traditional house. The major difference is that the mortgages are much harder to get with a condo than with a house. Lending companies and banks will typically enforce a whole different group of rules on a person purchasing a condo. It can also include a larger interest rate.
The Importance of Having a Professional Mortgage Lender Help Navigate the Process
Because of the complexity of non-warrantable condo loans, it is essential that a person engages a highly experienced mortgage lender to tackle the financing maze of the world of condos. They can help to overcome the many obstacles in the process.
Where condos are concerned, the lender has other problems than simply one’s credit score. They also have to conclusively confirm the physical and fiscal well-being of the whole condo development that is under consideration. This is easier when housing markets are recovering and values for condos are rising. It helps the lenders be a little more flexible with their loan guidelines and down payments.
Conforming Mortgages on Condos
It is important to make the correct distinction between conforming loans on warrantable versus non-warrantable condos. Conforming financing in mortgages refers to the fact that the loans will be bought up by either Freddie Mac or Fannie Mae, the government’s primary sponsored mortgage entities. Conforming loans meet their standards.
Both Freddie Mac and Fannie Mae employ the term warrantable in order to refer to a condo project or property for which they will permit a mortgage to be issued. The ones they will not make a mortgage against, that do not meet their standards, they call non-warrantable. It explains why these non-warrantable condo loans are so much more difficult to get financed.
Condos are usually warrantable according to the following guidelines:
Minimally 15 percent of all units must be occupied by the owners
One entity can not control over 10 percent of the project’s units
The HOA can not be named in pending lawsuits
Less than 15 percent of all condo units can be behind on their association dues
Any commercial space occupied makes up less than 25 percent of the entire square footage of the building
Typical properties which are non-warrantable would include the following:
Fractional ownership schemes
Projects that mandate owners to become a member of an organization like a golf or country club
It is all important since warrantable condo loans will generally help a buyer to obtain a more competitive interest rate on the mortgage than a non-warrantable one will. Banks are simply looking at what they consider to be risk for themselves, their deposit holders, and investors.
VA Condo Loans
Fortunately for veterens, the list of requirements for warrantable loans is less stringent than are the guidelines of Freddie Mac and Fannie Mae. The VA keeps its own list of communities that are approved or warrantable. Even those that are considered non-warrantable can be approved through a more streamlined and less rigorous asociaton approval process. More helpful still is the fact that in the last year, the FHA has altered its rules for condo approval to assist borrowers in becoming qualified for a condo loan.
In order to be considered warrantable, the FHA has the following minimal requirements:
Borrowers have to measure up to the FHA standard mortgage guidelines
Minimally 70 percent of all units have to be sold if the project is new
Half of the units in the condo have to be occupied by owners
The FHA will approve most any condo building that either Freddie Mac or Fannie Mae has already authorized as warrantable
The good news is that both the VA and the FHA do not assess extra fees in order to finance such a condominium. They will allow the same rate on a condo loan that they do with a single-family home interest rate.
Getting a Mortgage on a Non-Warrantable Condo
The options available on these non-warrantable condos will be fewer and farther between. This is why it is so challenging to obtain one. Condos are usually deemed to be non-warrantable according to these criteria:
The project is still in progress
The community permits shorter-term rentals
A developer of the project has not relinquished authority of the home owners association to the condo owners
One individual or an entity controls over 10 percent of the project units
The condo is part of a development where most units are occupied by non-owners who rent
A project involved in any kind of lawsuits is held to be non-warrantable as well
Individuals will not be able to obtain any finance from Freddie Mac, Fannie Mae, the VA, or the FHA if the property is considered to be non-warrantable. Instead it would require an individual to discuss the financing needs through seeking out a specialty lender.