Buying a condo might be an excellent investment — but should you’ve ever tried to finance a non-warrantable condo, you’ve probably discovered how challenging it can be. Traditional banks usually shy away from these properties, leaving buyers scrambling for alternatives. Understanding why banks avoid them and what you are able to do about it may also help you navigate the process confidently and keep away from costly mistakes.
What Is a Non-Warrantable Condo?
A non-warrantable condo is a condominium that doesn’t meet certain lending standards set by Fannie Mae or Freddie Mac, the 2 major government-sponsored enterprises that purchase and guarantee most home loans. These guidelines exist to attenuate risk, and when a condo project doesn’t meet them, it’s labeled as non-warrantable.
Common reasons a condo is perhaps considered non-warrantable include:
A high percentage of units owned by investors fairly than owner-occupants.
Significant pending litigation involving the condo association.
Too many owners being delinquent on association fees.
One entity owning more than 10% of the units in the development.
The property being used for short-term rentals or hotel-like services (equivalent to Airbnb).
These factors make traditional lenders nervous, as they suggest potential financial instability or a weaker resale market.
Why Traditional Banks Keep away from Non-Warrantable Condos
Traditional banks are closely regulated and risk-averse. Since they normally sell mortgages to Fannie Mae or Freddie Mac, they prefer properties that fit these agencies’ standards. Non-warrantable condos fall outside those guidelines — meaning the bank must keep the loan on its own books.
This poses just a few problems for lenders:
Higher Risk – Banks see non-warrantable condos as harder to sell in case of foreclosure and more unstable in value.
Liquidity Points – Loans that can’t be sold to Fannie Mae or Freddie Mac reduce a bank’s liquidity, tying up capital they may use for other lending.
Compliance Considerations – Banks prefer standardized loans that fit federal regulations. Non-warrantable condo loans require additional documentation, evaluation, and ongoing oversight.
Insurance and Litigation Exposure – If the building is going through legal or structural issues, the lender could possibly be exposed to losses beyond the property’s value.
For these reasons, traditional banks usually select to decline these applications altogether.
What You Can Do if You Want to Buy a Non-Warrantable Condo
Just because traditional banks keep away from these loans doesn’t imply you’re out of options. With the best strategy, you may still secure financing and buy the condo you want.
1. Look for Portfolio Lenders
Portfolio lenders — typically smaller community banks or credit unions — keep loans in-house somewhat than selling them on the secondary market. Because they assume the risk themselves, they are often more versatile and willing to work with buyers of non-warrantable condos.
2. Consider Non-QM (Non-Qualified Mortgage) Loans
Non-QM lenders focus on loans that don’t fit traditional criteria. These loans usually have slightly higher interest rates however enable for larger flexibility concerning property type, revenue verification, and credit history.
3. Increase Your Down Payment
The more money you put down, the less risky the loan appears to a lender. Many non-warrantable condo loans require 20% to 30% down, so being prepared with further capital can make your application more attractive.
4. Work with a Mortgage Broker Skilled in Non-Warrantable Condos
An skilled mortgage broker has access to specialised lenders who understand these types of properties. They’ll quickly establish financing options that fit your needs and guide you through complicated documentation requirements.
5. Request a Evaluation of the Condo Project
Typically, a condo project can change from non-warrantable to warrantable over time. If the developer or association resolves pending litigation, adjusts ownership ratios, or improves financial reserves, the condo may finally meet Fannie Mae or Freddie Mac standards — opening doors to traditional financing later.
6. Negotiate the Purchase Price
Because non-warrantable condos could be harder to sell, you might need more room to barter with the seller. A lower purchase worth may help offset higher financing costs.
The Backside Line
Traditional banks avoid non-warrantable condos because of the added monetary risk, compliance complexity, and reduced resale liquidity. Nevertheless, different financing options are available for those who know the place to look. Portfolio lenders, non-QM loans, and bigger down payments can all make the process smoother.
By understanding the challenges and exploring flexible lending options, you possibly can confidently purchase a non-warrantable condo — and potentially secure an awesome deal that traditional buyers would possibly overlook.
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