A non-warrantable condo refers to a condominium unit that does not meet the eligibility requirements for conventional mortgage financing due to certain characteristics or conditions that make it riskier for lenders. There are several reasons why a condo might be considered non-warrantable:

Non-warrantable Condo Due to Investor Concentration

Investor Concentration: If a significant percentage of units in the condo development are owned by investors and not owner-occupants, it can raise concerns about the stability of the homeowner association (HOA) and the potential for higher default rates.

Financial Issues

HOA Financial Health: Lenders often evaluate the financial health of the condo’s homeowner association. If the HOA has insufficient reserves, high delinquency rates among homeowners, or other financial issues, it can make the condo non-warrantable.

Single Entity Ownership

Single-Entity Ownership: If a single entity (such as a corporation or individual) owns a large number of units in the condo development, it can create financial instability and reduce the diversity of ownership.  Lenders don’t like to see too many condos owned by one person.

Commercial Space

Commercial Space: If a significant portion of the condo development includes commercial or non-residential space, it might be considered a non-warrantable condo as it can complicate the management and valuation of the property.

Ongoing Litigation May Mean a Non-warrantable Condo

Ongoing litigation involving the condo development can pose financial and legal risks, making it less attractive to lenders.

Reserve Funds

Reserve Funds: Lenders typically want to see that the condo’s HOA has sufficient reserve funds to cover maintenance, repairs, and unexpected expenses. A lack of adequate reserves can mean a non-warrantable condo.

Air BnB Can Make a Lender Nervous

Short-Term Rentals: Condos that allow short-term rentals (like those listed on platforms such as Airbnb) might be considered riskier due to the potential for unstable rental income and increased wear and tear.

New Construction Can Be an Issue

New Construction or Conversion: Newly constructed condos or condo conversions might not have a track record of stable financial performance, making lenders hesitant to provide financing.  That is why many builders offer financing for new sales.

Ownership Structure

Ownership Structure: Unconventional ownership structures, such as timeshares or fractional ownership, can result in a non-warrantable condo classification.

Lack of Amenities

Lack of Amenities: Certain amenities, like a swimming pool or fitness center, can raise maintenance costs and create financial uncertainty for the HOA. It’s important to note that while a condo may be classified as non-warrantable by one lender, another lender might still offer financing for it.

Alternate Financing

A non-warrantable condo typically requires alternative financing options, such as portfolio loans or specialized lenders that are willing to take on the additional risk associated with these properties.

If you own a non-warrantable condo, you have to find a Realtor who is familiar with the issue and works with a mortgage professional who has experience with such properties and can guide your buyers through the financing process so that they have the best terms available.  There are lots of things that Realtors have to do to “save the deal” and it all starts with making sure that the buyer has financing available.  Being prepared with the right financing will set your condo apart from other condos on the market in your building.


Let’s Talk

If you are concerned that you have a non-warrantable condo that is going to be hard to sell, then you need to talk to us now.  We are familiar with the issues that are involved in selling a non-warrantable condo.  We can make it easier to sell by arranging the financing for the prospective buyer before the property even comes on the market.  Call us at 240-401-5577 or email us at lise@lisehowe.com.

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