Stewardship Capital

Non-Warrantable Condo, Condotel and Co-op Loans

Some condos do not meet the rules of the big mortgage buyers, Fannie Mae and Freddie Mac. A lender calls these non-warrantable. They can still be financed, but through a different path. This page explains why a condo ends up in that group and what to expect.

What is a non-warrantable condo?

A warrantable condo meets the project rules set by Fannie Mae and Freddie Mac. A non-warrantable condo does not. The issue is not usually the unit. It is the building or the HOA. Because the lender is lending on a share of a whole project, the health of the project matters.

Why is a condo non-warrantable?

There are many reasons. The exact tests change over time and vary by investor. These are some common ones.

• Too many units are owned by investors instead of people who live there
• One person or company owns a large share of the units
• The HOA is in a lawsuit
• The project has a large amount of commercial space
• Many owners are behind on HOA dues
• The HOA has low reserves or big repairs ahead
• Short-term rental or hotel-style use is allowed
• The project is still new or not yet finished

A condo can fail on one item and still be financed. Stephen reviews the HOA documents and tells you where the project stands.

Can I still get a loan on a non-warrantable condo?

Often, yes. These loans usually come from lenders that keep the loan or sell it to investors with their own rules. That means different guidelines than a standard loan. Buyers should expect that the down payment, pricing and documents may differ from a standard condo loan. Rules vary by investor, and Stephen confirms them on the specific file.

What is a condotel?

A condotel is a condo in a hotel-style building. Owners may rent their unit to guests, and a front desk may run the property. Many standard loan programs will not finance these. Some non-warrantable lenders will. For rental use, see our DSCR investor loans page.

What is a co-op, and is it different?

In a co-op, you do not own a unit. You own shares in a corporation, and those shares come with the right to live in a unit. Co-ops are common in some parts of the country and rare in California. Co-op loans are share loans and follow different rules, and the board of the co-op may have its own approval steps. If you are looking at a co-op, call Stephen early to see if it fits.

How can realtors screen a condo early?

A few questions up front can save a deal. Ask the listing agent about any lawsuit, any special assessment, and how many units are owner-occupied. Ask whether short-term rentals are allowed and whether the HOA is current on its bills.

Also tell the buyer that a second home or an investment condo may be judged differently than a main home. Stephen can review the HOA papers before the offer is final and say what is likely to be a problem.

What should buyers and realtors gather?

Start with the HOA documents as soon as you have an accepted offer, or even sooner. These help the lender decide.

• The HOA questionnaire completed by the management company
• The HOA budget and recent financial statements
• A reserve study
• The master insurance policy
• The CC&Rs and any notice of a lawsuit
• The owner and rental counts

Delays in getting these papers are a common reason condo deals slip. Learn more on our Buy a Home page, see loan limits by county for limits by county, and read our seller concession limits page for how seller credits may be limited.

This is not a quote, a commitment to lend or an offer of credit. Stephen Chakerian, NMLS #2193331 | Stewardship Capital, a team of Barrett Financial Group, L.L.C., NMLS #181106 | Equal Housing Opportunity.