What is a Non-Warrantable Condo?

Imagine: You’ve found the perfect condo. It has just the right amount of space, is in the ideal location, and it’s well within your price range. Your heart is set. Then, you find out that it’s been designated as a non-warrantable condo. Is your dream home dashed?  

Not necessarily. Non-warrantable condos come in many different shapes and sizes, earning their designation for a range of reasons. Every lender is likely to approach these properties differently. In this article, we will discuss what causes a condo to be non-warrantable and how you can finance a non-warrantable condo.

What Makes a Condo Non-Warrantable?

Broadly speaking, a non-warrantable condo is labeled as such because it doesn’t meet traditional guidelines and won’t be financed by government entities like Fannie Mae and Freddie Mac. Condo buildings must apply to be designated warrantable.  

Some of the factors that contribute to a non-warrantable designation include: 

• The property owner, homeowners’ association (HOA) or developer is involved in litigation.  

• A high percentage of units are non-owner occupied.  

• The developer has not turned over management of HOA to the unit owners.  

• The development is still under construction or is subject to future phases.  

• The community allows short-term rentals.  

• More than 35% of the units are used commercially or are considered mixed use.  

• The property requires critical repairs.

Non-warrantable condos can be more difficult to finance, as buyers are unlikely to be able to access conventional, Federal Housing Administration (FHA), Veterans Affairs (VA), or United States Department of Agriculture (USDA) loans. Even buyers with great credit scores and a large down payment will need to turn to portfolio lending solutions.

How Can I Know if a Condo is Non-Warrantable?

As you’re searching for condos, be sure to ask your realtor, lender, or the condo management office whether your preferred condo is warrantable. You can also search the U.S. Department of Housing and Urban Development approved condo database. Before you fall in love with a condo, try to discern whether it’s warrantable or not, and whether you are able to pursue alternative financing options if it is not warrantable.

Can You Buy a Non-Warrantable Condo?

If your ideal condo is non-warrantable, don’t lose hope just yet. You may be able to secure financing outside of conventional lending solutions. Note that not all lenders offer non-warrantable condo loans, so you may need to shop around for the right lender. Those loans often require larger down payments and may also have higher interest rates, so prepare to adjust your budget and expectations accordingly.

What Are the Benefits of a Non-Warrantable Condo Loan?

Lenders who offer non-warrantable condo loans—The Federal Savings Bank included—allow eligible borrowers to buy their dream condo, even if conventional solutions would not. Though other lenders may differ, our loan offering allows borrowers to access condos even under the following circumstances:  

• Low-rise, mid-rise or high-rise buildings 

• 100% investor concentration in the building 

• New construction and condo conversion allowed  

• Litigation may be acceptable on a case-by-case basis  

Now, as with any home loan, the specific guidelines may vary based on the property and on the buyer’s financial situation. If you have your heart set on a specific condo, though, you may still be able to finance it with a non-warrantable condo loan.

Are Non-Warrantable Condos Worth Buying?

This depends on a wide range of factors, including your own finances, the location of the property, the condition of it, and more. However, buying a non-warrantable condo, under the right circumstances, might be a good investment.  

Due to the complexity of selling these homes, as well as the factors that got them flagged in the first place, they are sometimes listed below the market price. Should the condo become warrantable after you purchase, there’s a decent chance it will have appreciated.  

Still, there’s no guarantee that a non-warrantable condo will or won’t be a smart investment. Be sure to consider the contributing factors for that home in particular before making your own informed decision.  

Also, remember that just as buying a non-warrantable condo can be complicated, so too can selling one. Further, some factors can make correcting the warrantability issue difficult or expensive. Keep that in mind as you plan for your purchase.

Can a Non-Warrantable Condo Become Warrantable?

In certain cases, a non-warrantable condo can become warrantable. Naturally, if the issues that garnered the non-warrantable designation are resolved, such as pending litigation or critical repairs. However, there are other potential avenues to challenge the warrantability of a condo.  

For example, one could apply for a Single-Unit Approval from the FHA, also known as a spot approval. Though not a guarantee, this process can gain approval for individual units in otherwise non-warrantable buildings.

Final Thoughts

Dream homes look different for everyone. Your dream home may just so happen to fall outside traditional mortgage guidelines. That doesn’t necessarily mean you need to settle for something else.  

If your preferred condo is flagged as non-warrantable, you might still be able to purchase it. It is highly unlikely that you will have access to conventional or government-backed loan solutions, however. While those options may not be available, other lending pathways exist depending on your lender.  

So, don’t abandon that condo just yet. Talk to a lender who works with non-warrantable condos to determine whether you might still have an opportunity to purchase.