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Warrantable vs. Non-Warrantable Condos: What You Must Know Before Buying

Warrantable vs. Non-Warrantable Condos: What You Must Know Before Buying

When purchasing a condominium, financing may be more complex than with a traditional home. We aim to guide buyers through each step of the process—including navigating the key distinction between warrantable and non-warrantable condos. Understanding this classification is essential to determine financing options, risk levels and overall loan eligibility.

What Is a Warrantable Condo?

Warrantable condos meet the eligibility standards set by Fannie Mae® and Freddie Mac®. These standards help lenders understand the level of risk associated with a particular condo.

Key Characteristics of a Warrantable Condo:

  • No more than 35% of the property is dedicated to commercial use
  • No single entity owns more than 25% of the condo units
  • No ongoing litigation associated with safety or affecting property values
  • Project is not operating as a hotel/motel or short-term rental

Other factors that could impact a condo loan include the finances of the HOA and the delinquency rates of building occupants. Warrantable condos typically allow buyers to qualify for conventional conforming loans which may provide better rates, lower down payments and simplified underwriting compared with loan products for non-warrantable condos.

What Is a Non-Warrantable Condo?

A non-warrantable condo fails to meet the requirements set by Fannie Mae® and Freddie Mac®. These properties are viewed as higher-risk by lenders, often leading to:

  • Higher interest rates
  • Larger required down payments (20% or more)
  • Fewer lender options
  • More rigorous documentation and underwriting

Common Reasons a Condo Becomes Non-Warrantable:

  • Too many short-term rentals
  • A single entity owns more than 25% or more of the units
  • The project faces serious litigation
  • Property houses more than 35% commercial space

How to Check Condo Eligibility

Buyers can verify if a condo project is warrantable by consulting with their lender, or checking:

  • The FHA-Approved Condo List posted by HUD
  • VA’s Condo Approval Search

Lenders will also request a Condo Questionnaire from the HOA to assess criteria such as owner-occupancy, reserve funding, insurance coverage, and litigation.

Key Takeaways for Condo Buyers

  • Warrantable condos simplify financing and resale
  • Non-warrantable condos are not impossible to finance, but may carry more restrictions
  • Ask your lender or real estate agent to perform a project eligibility review early
  • Eligible borrowers and projects may qualify for government-backed financing

 

 

Fannie Mae® is a registered trademark of the Federal National Mortgage Association. Freddie Mac® is a registered trademark of the Federal Home Loan Mortgage Corporation.