When purchasing a condo, it is critical to understand the distinction between warrantable and non-warrantable units. Condos that are warrantable meet all of the government’s requirements, whereas non-warrantable condos do not meet all of them. In this blog post, we’ll go over the basics of each type of condo and help you decide which is best for you.
Warrantable condos are important because they meet the government’s requirements. This means that the condo is eligible for FHA or VA financing, which can be beneficial when purchasing a condo. Because a non-warrantable condo does not meet all of these criteria, it cannot be funded through government programmes.
There are a few distinctions to be made between warrantable and non-warrantable condos. First, let’s define a warrantable condo.
What is a warrantable condo and is important?
A warrantable condo is a condominium unit that meets Fannie Mae, Freddie Mac, or the Federal Housing Administration’s guidelines (FHA). There are several reasons why having a warrantable condo is critical.
To begin, if you want to get a mortgage, you’ll almost certainly have to go through one of the government-sponsored enterprises (GSEs), such as Fannie Mae or Freddie Mac. Your condo must meet their eligibility requirements in order to do so.
If your condo is not warrantable, you may still be able to obtain a mortgage, but it will most likely be a private lender’s A portfolio loan. A portfolio loan is one that the lender keeps rather than selling on the secondary market. This means that the lender assumes the entire risk of the loan. As a result, portfolio loans may have stricter underwriting criteria than conventional loans, potentially resulting in a higher interest rate and less favourable terms.
Furthermore, if you plan to sell your condo in the future, it will most likely need to be warrantable in order to qualify for GSE financing, which is frequently the preferred type of financing for buyers.
So, what exactly do you need in order to have a warrantable condo?
A condo must meet several requirements in order to be considered warrantable:
- The condo’s construction must be completed.
- More than half of the condo units must be owner-occupied.
- No individual or corporation may own more than 10% of the units in the community. This includes the programmer.
- The homeowners association (HOA) must be controlled by the residents rather than the developer.
- More than 75% of the residents must pay their HOA fees on time.
- There are no current lawsuits against the HOA.
- If the community is not solely for residential use, commercial space must account for no more than 25% of total building square footage.
What is a Non Warrantable Condo?
Now that we’ve covered warrantable condos, let’s move on to non warrantable condo. A non-warrantable condo is a condominium unit that does not meet the guidelines established by Fannie Mae, Freddie Mac, or the Federal Housing Administration (FHA), and is regarded as more “risky” by most banks. there are some lenders that offer mortgage loans for non-warrantable condos
They have established criteria for what they consider to be a “safe” investment, and if your condo does not meet those criteria, it is considered non-warrantable. selling a non warrantable condo is also a great decision.
Non-warrantable condos are frequently newly constructed or converted from another type of property, such as an office building. Condos may also be part of a larger project, such as a hotel or resort.
A condo may be considered non-warrantable for a number of reasons, including:
- The condo is still under construction.
- More than half of the units in the condo are not owner-occupied. More than 10% of the units in the community are owned by a single person or company.
- Delinquency of 15%
- More than 75 percent of the residents must be current with the HOA fees.
- The homeowners association must be controlled by the residents rather than the developers.
- If the community is not solely for residential use, commercial space must make up 25% or less of the overall building area.
How to find out if your condo is warrantable?
Because Fannie Mae and Freddie Mac do not keep a public list of approved projects, determining whether a condo is warrantable can be difficult. Instead, your lender (or real estate agent if you are selling) may be required to order a condo project review to determine whether the property is warrantable.
Because the review process can be time-consuming and costly, it is critical to consider all of your options before deciding whether to purchase a warrantable condo. If you are unsure whether a particular property is warrantable, you should speak with a real estate attorney or another experienced professional who can guide you through the complicated approval process.
The best way to determine whether or not your condo is warrantable is to speak with your lender or a housing counsellor. They will be able to tell you what type of financing you will need to buy a condo, as well as whether your condo is eligible for GSE financing.
There are numerous factors to consider when looking for a new place to live. One critical question to consider is whether your unit is warrantable. A warrantable condominium is one that meets the criteria established by the government-sponsored enterprises Fannie Mae and Freddie Mac.
These organisations provide loans to many condo buyers, so make sure your property meets their requirements. Your real estate agent should be able to tell you whether buying a condo is a good investment, but if they are unsure, they can assist you in researching the answer.
Remember that if a condo isn’t warrantable, you may have a more difficult time obtaining financing. So, if you’re thinking about buying a condo, make sure to ask your real estate agent about the warranty. It could make or break your ability to purchase the property.
If you intend to sell your condo in the future, you should also ensure that it is warrantable. This way, you’ll have more buyers who can finance the purchase with a GSE.
The bottom line is that when buying or selling a condo, warrantability is an important factor to consider.
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