Mortgages for Non-warrantable Condos

When searching for condos, many people don't realize that condo association itself must meet conventional standards in order to qualify for conventional financing. When it doesn't fit these guidelines, it's called a non-warrantable condo. And guess what? That's a pretty big deal!

With hundreds of detailed qualification standards, there are many reasons a condominium association (HOA - home owner's association) may be unwarrantable.


When a mortgage lender rejects the condominium association, it's usually not due to mortgage company's rules. It's usually disqualified based on industry-wide mortgage agency requirements. 


Whatever the issue is, let's think about the basic situation. Then we'll discuss some of your options...

Opportunity for a Better Deal with a Nonwarrantable Condo?

When I see transactions with nonwarrantable condominium projects, it's often with a customer who's been searching for a while but can't find anything that meets their criteria. Often it's because what they want isn't readily available within their price range. All of a sudden, they'll find a condo that seems priced surprisingly low for what it offers. Exciting!

But... Alas! At some point, we'll find out the reason for the lower price. It's a nonwarrantable condo association! There are two reasons nonwarrantable condos generally sell at lower prices--

  1. Whatever feature disqualifies it from conventional financing also tends to make it less appealing in the market in its own right (Do you want to share your living space with a lot of commercial traffic, or do you want to buy a condo that has budget issues -- which could lead to higher assessments in the future?)

  2. It severely limits the pool of prospective buyers. Most condominium buyers want to buy with conventional financing. They generally can't do that with a condo in a non-warrantable project.

     (Note, however, there are different depths of condominium review depending on down payment level and various factors. Sometimes more obscure, technical disqualifying factors are only discovered through deeper review).

    But generally speaking, the fact a condominium association (HOA) is rejected from conventional financing immediately cuts off at least half of the prospective market. Buyers will need to utilize non-conventional financing which typically entails higher rates and costs, fewer options, no fixed rate mortgage options, and typically larger downpayment requirements.

When you purchase a nonwarrantable condo, you have to think about these things. Even if you're buying with cash, someday you'll want to sell the condo. Who will buy it? 

Okay, let's not get too dramatic. People buy non-warrantable condos every day. But often they take longer to sell, and they don't sell as high as normal condos in associations that qualify for conventional financing. You'll just need to take this into account.


For these reasons, you should be able to get a significantly lower price on a non-warrantable condominium. 

Extra Costs and Headaches on Non-Warrantable Condos


You need to think ahead. What extra costs are you likely to incur for a non-warrantable condo? This may depend on the reason for non-warrantability. Why is the condominium association turned down from conventional financing?


  • If it's rejected due to a budget issue, chances are good the association will have to raise association fees or charge a special assessment in the future.

  • If the association is disqualified due to a major repair to be done in the association, the cost get passed on to the owners. So you may face a special assessment.  

  • If the condo association is in litigation, as one of the owners, you may incur a share of the legal fees and liability.

  • If the condo association is still controlled by the developer, you may get caught up in the bureaucratic process of transitioning it to the control and administration of the owners.

  • At some time in the future, the owners may want to make their association warrantable to appeal to more buyers. That would involve resolving whatever the problem is, and there would typically be a cost to do that -- which could get passed on to you.

On top of that, you need to think ahead to when you'll want to SELL the condo some day...


It could easily take several months longer to sell the non-warrantable condo. That detracts from your mobility or force you to carry two mortgages for a longer period of time.

It's also common for non-warrantable condos sales transactions to fall apart. You may accept an offer from a buyer. You may put the wheels in motion for the next steps of your life. Then... poof! The buyer is gone! If they didn't know it was non-warrantable from the start, this will probably happen.


Even if they knew it was unwarrantable from the start, it still happens. Most buyers have a fuzzy idea what "non-warrantable condo" means. As they get further in the process, they're likely to reevaluate and change their minds!


Plus, if they run into a problem, it's hard to overcome any obstacles because the options are limited. If the single program they're counting on doesn't work, they're probably out of luck -- the deal will fall apart. Imagine having to start, stop, and restart your next steps after accepting offers to purchase.


Lack of fixed rate options with non-warrantable condos

When a condo association is disqualified from conventional financing, you obviously can't do conventional fixed-rate financing. So you'll basically just find ARMs options for a non-warrantable condo. The options are typically 5/1, 7/1, and 10/1 ARMS. That means they're initially fixed for 5, 7, or 10 years respectively, but they can be amortized over 30 years.

What are the extra loan/financing costs?

It depends on the situation. But here's a rough rule of thumb...

You could either pay a higher rate OR pay higher upfront costs to get approximately the same rate you would get on a conventional ARM loan.

For approximately the same rate for non-warrantable condo as you'd get on an ARM for a conventional loan, let's say you'd pay about 2% extra upfront cost at closing.

On a $200,000 loan, that would cost about $4,000 more upfront. (Many people take a rate bump rather than the higher pay upfront costs, but this way of thinking about it helps to quantify the difference).

The figure could be higher or lower for you. Whatever the figure is, it's helpful to know, so that you can quantify the extra cost. That would be helpful to know before you negotiate, right?

That's not the end of the world. It's totally reasonable to ask the seller to pay for this -- or expect the price should be very well discounted to more than pay for this.

The point is simply to illustrate the type of information that will be helpful to know before you negotiate on a contract. It's important to get in touch with us in advance so we can explore the days for you in a more personalized way.


An extra factor to keep in mind with non-warrantable condos

The fact a program is geared toward non-warrantable condo associations does not mean it has no standards. Every mortgage program has certain standards for condo associations. There's always some degree of condo association review.


Depending on why it's nonwarrantable and rejected from conventional financing, it's possible that it won't qualify even for one of these programs. You may want to leave extra time in your offer for us to gather in depth information about the condo association before you pay for things like appraisal and inspection.

Did I convince you NOT to buy a non-warrantable condo? That's not my intention. As always, I'm just being honest and transparent. This is your life! You need honesty, transparency, and heavy doses of reality in this process. All of this leads to this important point...

A basic principle on price 

Generally, the price discount on a house should overcompensate for any negative factor.


Let's take a different example. For instance, if a home is selling that needs a $20,000 repair, it should be discounted more than $20,000 because very few people have the time, cash, patience, or interest in completing a $20,000 repair. Why not just forget that one and pay $20,000 more for a home that doesn't need the repair? The discount needs to compensate for the extra cost involved, plus provide an incentive for someone to even bother with it. This isn't just an incentive to take on some little project. This is somebody's home! 

Non-warrantability is absolutely one of those negative factors. As a principle, the price discount should compensate for any extra cost you incur, plus give you an incentive to take the extra risk. 

Negotiation Advantages

Sometimes you'll only find out a condo association is ineligible for conventional financing only after getting deep into the process. That's sad, unfortunate, unfair, it shouldn't happen that way! Buyers count on owners to disclose this information upfront.

Other times, you'll know it's non-warrantable from the start because the seller has basic awareness, and the seller and their agent do the right thing and disclose this information.

Either way, the information you are now gathering can give you a significant edge in negotiation. When you get in touch with us, you can approach the process as a more educated and more prepared buyer. If the seller is smart, they'd rather deal with someone who's prepared for all these issues rather than a buyer with fuzzy ideas who's going to face a reality-check later in the process. Get in touch, so we can help you get fully prepared.

You don't have to figure this out by yourself! We're here to help. We'd love to help you explore the options relevant to you -- whether that's for a regular condo or a non-warrantable condo. If you're planning to buy a condo within the next three months, start out by completing the information at Get Started Online.

Non-Warrantable Condo Mortgage Options

We have two primary channels for non-warrantable condos...

Preferred Non-Warrantable Condominium Mortgage Channel with as Low as 5% Down Financing

  • 5% down payment non-warrantable condo possible (up to 95% financing)!!

  • ARMs: 5/1, 7/1, 10/1 (amortized over 30 years)

  • This channel is more selective on condo associations than the other channel

  • Very favorable ARM pricing for non-warrantable condos!

  • No presale requirements (presales are for newer projects)

  • Can be the first unit financed in the project or phase -- as long as the unit has not been on the market for more than three months

  • Owner-Occupied AND second homes

  • Small projects (2-4 unit associations) acceptable

  • Near-complete construction on common areas often acceptable 

  • Near-complete condos acceptable (usually 90%)

  • Developer may own over 20% of units during initial marketing period

  • A single entity can own over 10% and up to 20% of the units

Examples of program limitations:

  • No investment properties

  • No condotels

  • No projects with outstanding environmental or legal issues

  • No projects where more than 50% of the units are non-owner occupied

  • No one entity may own more than 20% of the available units (with the exception of the developer during the initial marketing period)

  • Subject property must be substantially complete

  • Commercial space must not exceed 33% of the total square footage

  • All common elements/amenities must be substantially complete (usually 90%)

Flexible Non-Warrantable Condominiums Mortgage Channel

  • 20% down minimum (up to 80% financing)

  • ARMs: 5/1, 7/1, 10/1

  • More flexible on non-warrantable condo associations

  • No presale requirements (presales are for newer projects)

  • Can be the first to finance

  • Common areas must be complete

  • Conversions permitted

  • Association controlled by developer (not turned over) permitted

  • Minimum 50% occupancy required 

  • Condo association litigation reviewed on case-by-case basis

  • Major condition issues considered on case-by-case basis

  • 2 unit associations permitted

  • Commercial space over 30-50% considered on case-by-case basis

  • Single entity owning over 15% of units considered on case-by-case basis

  • No condotels

  • Owner-occupied only

Examples of program limitations:

  • No investment properties

  • No incomplete common areas

  • No projects with less than 50% occupancy (except new projects)

  • No condotels

  • No second homes (primary residence only)

  • No investment properties

  • Exceed commercial space, single entity ownership, condition issues, legal issues reviewed on case-by-case basis

I realize the bullet-points are abstract at this stage. When you get in touch, we can discuss details and information in a more meaningful way that's specific to you. We're happy to help you explore your options. If you already found a condo -- or you're searching for a home within the next three months -- start out by completing the information at Get Started Online.

Frequently Asked Questions (FAQ's) on Non-Warrantable Condo Loans

Q. Why is a condominium association (HOA) non-warrantable?

A. There are hundreds of potential reasons.

It could be due the amount of commercial space in the building, pending litigation, budget issues, control of the association (controlled by developer rather than homeowner's), certain odd features like boat docks sold with the units, stages of development, ongoing construction phases, lack of units sold, amount of delinquent association fee payments, a single entity owning more than 10% of the units, amount of vacant units, unsatisfactory insurance coverage, provisions in the bylaws that inhibit lender's rights in case of foreclosure, or many other issues.

Q. Why can't I get a 30-year fixed rate mortgage on a non-warrantable condo?

A. Well, if you really want to know -- Surprise! Banks don't lend their own money for 30-years on a fixed rate. When people get long-term fixed rates, the bank is ultimately a conduit between consumers and the mortgage agencies -- Fannie and Freddie -- who generate funds on Wall Street through mortgage securities. By definition, when a condo is non-warrantable, these funds from the conventional agencies cannot be used.

Q. If a condo association is non-warrantable for conventional financing, what about FHA?

A. Conventional loans require a review by the lender according to conventional guidelines. On the other hand, FHA financing requires condo project approval by the FHA itself. It's a slow, bureaucratic process. The FHA has approved only a small percentage of condo associations. So FHA is not a big player with condominium financing. Plus, they have their own set of guidelines, which largely overlap with conventional guidelines. If the project is ineligible for conventional financing, it's almost certainly ineligible for FHA financing.

Q. How can I get more information on my options?

A. Glad you asked this Frequently Asked Question! See below!

Where Should I Go from Here??

  • If you're targeting a purchase within the next three months, or unfortunately ran into this problem unexpectedly, the clock is ticking. You should have been in touch with us... Like yesterday! Your next step is to stop what you're doing and take some time to complete the information on our Get Started Online page. (If you're outside WI, see below)

  • If you're targeting a purchase date beyond three months (or if you're outside WI), use the contact form below to get in touch.

I'm beyond three months away from my purchase, but please get in touch to help me plan and prepare!

I'm buying outside WI, but your information is spectacular! Please put me in touch with a colleague who serves my area!

Greg Schliesmann
Branch Manager, NMLS# 234288
Cherry Creek Mortgage Co., Inc

Greg Schliesmann
Branch Manager, NMLS# 234288
Cherry Creek Mortgage Co., Inc

1033 N Mayfair Rd, Suite 100
Wauwatosa, WI 53226

Tel: 414-617-1756

1033 N Mayfair Rd, Suite 100
Wauwatosa, WI 53226

Tel: 414-617-1756

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