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How to Determine If a Condo is Warrantable – RISMedia’s Housecall


By Bill Gassett 

Understanding whether a condo is warrantable is vital when considering a mortgage application. A warrantable condo meets criteria set by government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac.

Non-warrantable condos face financing challenges, but options exist. Determining warrantability entails checking GSE approval, utilizing FHA and VA resources, and consulting with mortgage lenders and buyer’s agents.

Financing options for non-warrantable condos include specialized lenders and FHA and VA loans. Considering the risks associated with non-warrantable condos, such as resale value impact and potential financing and insurance issues, is crucial.

Tips for purchasing a warrantable condo include complying with warrantability requirements and seeking guidance from knowledgeable real estate professionals.

Understanding the Concept of Warrantability for Condos
When buying a condo, understanding the concept of warrantability is crucial. We will explore what constitutes a warrantable condo, the criteria for a condo to be considered non-warrantable, and the importance of determining warrantability before applying for a mortgage.

Definition of a Warrantable Condo
A warrantable condo refers to a condominium project that meets specific criteria set by government-sponsored enterprises (GSEs) such as Fannie Mae and Freddie Mac.

These condos are considered low-risk investments for lenders and are eligible for conventional mortgage financing.

Criteria for a Condo to be Considered Non-Warrantable
In contrast, a non-warrantable condo doesn’t meet the requirements established by GSEs and is considered higher risk. Condos that fall under this category may have factors such as ongoing litigation, high investor occupancy, or excessive commercial use.

Importance of Determining Warrantability Before Applying for a Mortgage
Before applying for a mortgage, it’s crucial to determine the warrantability of a condo. Warrantable condos offer more financing options and typically have better resale value and marketability. Understanding the warrantability status enables you to make an informed decision and avoid potential financing and insurance challenges.

How to Determine if a Condo is Warrantable
Determining the warrantability of a condo is crucial before moving forward with a mortgage application. By following the appropriate steps, potential buyers can assess if a condo meets the necessary criteria for financing.

Checking Approval by Government-Sponsored Enterprises (GSEs)
Mortgage seekers can start by verifying if a condo is approved by Government-Sponsored Enterprises (GSEs) like Fannie Mae and Freddie Mac. These entities set guidelines and standards that condos must meet to be deemed warrantable.

Buyers can consult approved condo lists the GSEs provide or use their online databases to search quickly.

Utilizing Resources from the Federal Housing Administration (FHA) and Veterans Affairs (VA)
The Federal Housing Administration (FHA) and Veterans Affairs (VA) also provide resources to determine condo warrantability. FHA maintains a comprehensive approved condo list accessible to the public. Additionally, buyers can use the VA’s Condo Search tool on their website to check if a condo is eligible for VA financing.

Consulting With Mortgage Lenders and Real Estate Agents
Buyers can seek guidance from mortgage lenders and real estate agents with condo financing expertise. Lenders often have access to databases that contain information on warrantable condos.

Real estate agents can provide valuable insights based on their experience with condos in the local market. Consulting with these professionals can help buyers navigate the complex process of determining warrantability.

Financing Options for Non-Warrantable Condos
Exploring various financing options is essential to ensure a smooth home purchase when dealing with non-warrantable condos. Although non-warrantable condos may pose challenges, avenues remain available to secure the necessary funding.

Exploring Non-Warrantable Condo Lenders
When financing a non-warrantable condo, one option is to explore lenders who specialize in such properties. These lenders have expertise in evaluating the unique risks associated with non-warrantable condos and may offer competitive loan terms.

Researching and contacting these specialized lenders can provide a viable financing solution.

Considering FHA and VA Loans for Non-Warrantable Condos
Another avenue to explore for financing non-warrantable condos is government-backed loans, such as those offered by the Federal Housing Administration (FHA) and Veterans Affairs (VA). While these loan programs typically have strict criteria, they may offer more flexible options for non-warrantable condos.

It’s advisable to consult with mortgage lenders familiar with FHA and VA loans to determine eligibility and explore the benefits of these programs.

Alternative Financing Sources for Non-Warrantable Condos
In addition to specialized lenders and government-backed loans, alternative financing sources are available for non-warrantable condos. Local banks, credit unions, and portfolio lenders may provide financing options tailored to these properties.

These sources often have more flexible underwriting criteria and can offer competitive loan terms. Exploring these alternative financing sources could open up additional possibilities for purchasing a non-warrantable condo.

Risks and Challenges of Buying a Non-Warrantable Condo
The decision to purchase a non-warrantable condo comes with its risks and challenges. It’s crucial to be aware of these potential drawbacks before investing in such a property.

Impact on Resale Value and Marketability
One significant risk of buying a non-warrantable condo is its impact on resale value and marketability. These condos often have limited financing options, which can deter potential buyers when it comes time to sell.

The niche market for non-warrantable condos may also result in longer selling times and potentially lower resale prices than warrantable ones.

Potential Issues With Financing and Insurance
Financing and insurance can be more challenging to obtain for non-warrantable condos. Traditional lenders may hesitate to provide the funding, necessitating alternative options such as specialized lenders.

Additionally, insurance companies may perceive non-warrantable condos as having higher risks due to their unique characteristics, potentially leading to higher insurance premiums.

Factors to Consider Before Investing in a Non-Warrantable Condo
Before deciding to invest in a non-warrantable condo, several factors should be carefully evaluated:

  • Market Demand: Assess the demand for non-warrantable condos in the area. Are there enough potential buyers who are willing to purchase these properties?
  • Financial Stability: Consider your financial stability and ability to secure financing for a non-warrantable condo. This will determine if you can handle any potential challenges that may arise.
  • Long-Term Goals: Evaluate your long-term goals with the condo. Are you planning to live in it for an extended period or view it as an investment property? Understanding your objectives will help determine if the risks associated with a non-warrantable condo align with your plans.

By carefully considering these factors, you can make an informed decision about whether or not to invest in a non-warrantable condo.

Tips for Purchasing a Warrantable Condo
If you are considering buying a warrantable condo, there are several essential tips to remember. These tips will help ensure a smooth buying process and help you make a well-informed decision.

Take note of the following:

Ensuring Compliance With Warrantability Requirements
Before finalizing your purchase, ensure that the condo you want complies with warrantability requirements. These requirements typically include no pending litigation, a high owner-occupancy ratio, and limited commercial usage.

Verify these requirements through your real estate agent, mortgage lender, or the Department of Housing and Urban Development (HUD) database.

Working With Knowledgeable Real Estate Professionals
When purchasing a warrantable condo, partnering with experienced and knowledgeable real estate professionals is essential. As mentioned, seek guidance from a reliable real estate agent who specializes in condos and is well-versed in the intricacies of warrantability. They can provide valuable insights, answer your questions, and guide you through purchasing.

Understanding the Loan Process for Warrantable Condos
Obtaining financing for a warrantable condo requires a thorough understanding of the loan process. Work closely with your mortgage lender to ensure a smooth and successful loan application. They will guide you through the necessary documentation, eligibility criteria, and loan options for warrantable condos.

Be prepared to provide financial information and meet additional lender-specific requirements.

Final Thoughts
By following these tips, you can confidently navigate purchasing a warrantable condo. Ensuring compliance with warrantability requirements, working with knowledgeable professionals, and understanding the loan process will help you make an informed decision and secure financing for your dream condo.

Bill Gassett is a nationally recognized real estate leader who has been helping people buy and sell MetroWest Massachusetts real estate for the past 33 years. He has been one of the top RE/MAX REALTORS® in New England for the past decade. Gassett works for RE/MAX Executive Realty in Hopkinton, Massachusetts. In 2018, he was the No. 1 RE/MAX real estate agent in Massachusetts.


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