The Complete Guide to Warrantable and Non Warrantable Condo: What You Need to Know


When it comes to purchasing a condominium, there are a variety of factors to consider. One of the most important considerations is whether the condo is warrantable or non-warrantable. Understanding the differences between these two types of condos can help you make an informed decision about your purchase. in the best places in Canada (Toronto  /   Hamilton   /    Mississauga)

What is a Warrantable Condo?

A warrantable condo is a condominium that meets specific criteria set by Fannie Mae and Freddie Mac, the government-sponsored entities that purchase and guarantee mortgages. In order to be considered warrantable, a condo must meet certain requirements, including:

  • The complex must be completed, with no new construction or ongoing development
  • At least 50% of the units in the complex must be owner-occupied
  • The complex must be in good financial standing, with adequate reserves for repairs and maintenance
  • No more than 10% of the units can be owned by a single entity or individual
  • No more than 15% of the units can be delinquent on their homeowner association dues

Advantages of Buying a Warrantable Condo

One of the primary advantages of buying a warrantable condo is that it is easier to obtain financing. Since these condos meet Fannie Mae and Freddie Mac’s criteria, they are considered less risky for lenders. This makes it easier for buyers to secure a mortgage, and may result in lower interest rates and smaller down payments.

According to a report by the National Association of Realtors, 72% of condominium buyers obtained a conventional mortgage in 2020. For these buyers, purchasing a warrantable condo may be the most straightforward option.

What is a Non-Warrantable Condo?

A non-warrantable condo is a condominium that does not meet Fannie Mae and Freddie Mac’s criteria for conventional financing. There are a variety of reasons why a condo may be considered non-warrantable, including:

Disadvantages of Buying a Non-Warrantable condo

The primary disadvantage of purchasing a non-warrantable condo is that it can be more difficult to obtain financing. Since these condos are considered riskier for lenders, buyers may need to pay a higher interest rate, provide a larger down payment, or even pay cash Click here for know more about how much down payment in toronto. This can make the purchase less affordable for some buyers.

According to a report by the Mortgage Bankers Association, non-warrantable condos represented just 1.6% of all mortgages in 2022. This suggests that the majority of condo buyers may prefer to purchase a warrantable property.

Can You Still Get a Mortgage on a Non-Warrantable Condo?

While it may be more challenging to obtain financing for a non-warrantable condo, it is still possible. Some lenders specialize in these types of properties, and may be willing to provide a mortgage with certain conditions. For example, a lender may require a larger down payment, or charge a higher interest rate.

According to a report by the National Association of Realtors, 10% of condominium buyers obtained an FHA loan in 2022. FHA loans are a type of government-backed mortgage that can be used to purchase non-warrantable condos, among other properties.

What Should You Consider When Buying a Warrantable or Non-Warrantable Condo?

When considering a warrantable or non-warrantable condo, there are a variety of factors to consider. Some key considerations include:

  1. The financial health of the condo association: Make sure the association has adequate reserves for repairs and maintenance, as well as any planned capital improvements. This information should be available in the association’s financial statements.
  2. The occupancy rate of the complex: The percentage of owner-occupied units in the complex can affect financing options. Lenders may be less willing to finance a complex with a low owner-occupancy rate.
  3. The management of the complex: Consider the management company or association board overseeing the complex. They should have a good reputation for handling repairs and maintenance and dealing with any issues that arise in a timely manner.
  4. The restrictions and rules of the complex: Read through the condo association’s bylaws and any other rules and restrictions in place. Make sure they align with your lifestyle and expectations for the property.
  5. The location and amenities of the complex: Consider the location and surrounding neighborhood, as well as the amenities offered by the complex. These can impact the overall value of the property and resale potential.

Issues with non-warrantable condos

If you’ve got your heart set on a non-warrantable condo, it’s important to understand possible issues you may face as a condo buyer, owner and eventual seller.

Problems buying the condo.

As a buyer, you’ll have to qualify for a bank’s portfolio loan instead of a conventional loan. While portfolio lending practices vary from bank to bank, you can expect to face stringent underwriting criteria. You may need to put down a large down payment (as much as 20% or more) to buy the condo.

Problems with the development’s financial health.

A condo may be non-warrantable because too many owners are delinquent on dues. It may be non-warrantable because the condo project sends insufficient money to its reserve fund for emergency expenses. Both symptoms reveal that the HOA may have cash flow problems. If an association cannot meet its financial obligations, owners may see their association dues increase. In some cases, owners may have to pay a special assessment to pay for necessary repairs and improvements.

Problems selling the unit.

If a condo is still non-warrantable when you sell, the unit will appeal to a smaller pool of homebuyers. Many buyers won’t have the necessary down payment or credit required to take out a portfolio loan.

Ability to obtain financing.

From the outside, a warrantable and non-warrantable condo may look the same. However, whether a condo is warrantable will make a huge difference in your ability to take out a loan to buy the property. If you learn that a condo is non-warrantable, consider the risks before you decide to buy.

How to find Non-warrantable condo lenders

If you’re trying to find a non-warrantable condo lender, it may be difficult to obtain financing through conventional mortgage lenders — but you may still qualify for a mortgage. The key is to find a portfolio lender. A portfolio lender is a bank, credit union or non-bank lender that does not sell its loans, or doesn’t sell all of them. Instead, it holds onto some loans until the loan is paid off.

You may find a portfolio lender by using the search term “non-warrantable condo loans.” However, you may also want to work with a local mortgage broker who specializes in condo loans. When searching for non-warrantable condo loans, mortgage brokers may be able to help you obtain specialized financing that you wouldn’t be able to secure on your own with most conventional mortgage lenders.

In conclusion

understanding the difference between warrantable and non-warrantable condos is crucial when it comes to securing financing for your home purchase. Knowing the requirements of Fannie Mae and Freddie Mac, as well as the financial health of the condo association, can help you determine whether a condo is warrantable or not. Non-warrantable condos may have more limited financing options, but they can still be a great investment for those who are willing to put in the extra effort. By doing your due diligence and working with a knowledgeable real estate professional, you can navigate the complex world of condo financing and find the right home for your needs. Additionally you need to know some points offered by Gulf Coast Bank.

Contact Tall Property:

If you have any questions or are interested in learning more about warrantable and non-warrantable condos, please don’t hesitate to contact Tall Property. Our team of experienced real estate professionals can help you navigate the condo financing process and find the right home for your needs. You can reach us by phone at (416) 878-0749 or by email at admin@tallproperty.com. We look forward to hearing from you!

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