It sounds ominous....unwarrantable condo...but what does it actually mean?
First off, hat tip to our clients Jamie and Gayle (follow their super cool band here!), who prompted me to write this piece. They are looking for a condo in Asbury Park, and have come across more than a couple unwarrantable condos...which made Nikki and I realize this is most likely not a phrase in the public vernacular.
Plainly put, Fannie Mae and Freddie Mac have minimum requirements for loans so that they may be sold to a third party. Let's say you use our personal favorite, Advisors Mortgage, to buy your home. At some point down the line, Advisors will sell your loan to a third party servicer. If the purchase is unwarrantable, they can not sell this loan, and must keep it. So, as a rule, most lenders will not lend on units that can not be sold. These loans are considered substantially riskier than one that does meet Fannie and Freddie's requirements.
So what causes a condo to be unwarrantable? Here are your four basic key factors.
The HOA or developer is involved in active litigation. I know litigation sounds scary, but in a high unit count like some buildings have, it's not a game of if, rather when. It happens.
The developer has not yet turned over duties to the HOA.
A single owner owns a high percentage of units in the building. Usually, but not always, this is the developer who holds and rents a portion of units after the initial offering.
Over 50% of the units in the building are rentals.
How to find out if your unit is warrantable
Before making a purchase, it's always good to check and see if your unit is warrantable, and you can do that right here. https://entp.hud.gov/idapp/html/condlook.cfm
What to do if your unit is NOT warrantable...can you still buy?
Either you found out ahead of time (your agent knew to ask) or you found out after submitting an offer, but either way, your condo can not be financed traditionally. What now??
You can still finance an unwarrantable unit using what's called a "portfolio loan". Think of it more as a peer to peer loan. The lender can not resell this loan, so as you may expect, some extra expense is incurred. Usually, portfolio loans for non warrantable units require at least 20% down.
That is all for this week friends!