A LOT OF CONDO AND TOWNHOME COMMUNITIES HAVE ISSUES WITH FINANCING, WHY?
Some communities are classified as 'non-warrantable' which means it doesn't meet the standard guidelines set by the Federal National Mortgage Association (Fannie Mae) or Federal Home Loan Mortgage Corporation (Freddie Mac). These entities buy, package and resell mortgages, often repackaged as mortgage-backed securities. In this case, these two enterprises do not back the community.Consequently, a buyer's lender must independently approve the condo building. Banks will have their own standards and criteria to establish if they're comfortable lending in non-warrantable communities. Typically, they scrutinize things like fiscal health of an HOA accounts/dues being up-to-date along with occupancy among other factors before approval.
WHAT MAKES SOME CONDOS NON-WARRANTABLE?
A condo can be considered non-warrantable for several reasons, typically based on the criteria set by Fannie Mae and Freddie Mac. Here are some common factors that could make a condo non-warrantable:
- High Investor Concentration: If a large percentage of units in the building are owned by investors rather than owner-occupants.
- Commercial Space: If a significant portion of the project's square footage is designated for commercial use.
- Low Occupancy Rate: If fewer than a certain percentage (commonly less than 50%) of units are sold or under contract to owner-occupant buyers.
- Lawsuits Against HOA: If there are pending legal actions involving the condominium association or homeowners association (HOA).
- Dues Delinquency Rate: If more than a certain percentage (commonly over 15%) of units are behind on their HOA dues.
- Amenity Ownership and Usage Restrictions:If amenities such as pools, gyms, or parking space ownership rights do not conform to specific guidelines.
If you're interested in purchasing or selling within a non-warrantable condo community, its advisable to work closely with your real estate agent and lender. They can help navigate financing options since traditional lenders might have stricter requirements or offer fewer loan products for such properties.
