I wish I had a dollar for every time I’ve been asked if a certain condo is warrantable or not. It’s not an easy question to answer. The reason is that the warrantability of a condo can change on any one day. But what is “warrantability”? The short answer: for a condo to be warrantable it must meet Fannie Mae, Freddie Mac, FHA or VA guidelines in order to close one of these transactions. These four entities are called “agencies” and when a lender underwrites a loan to agency guidelines, that loan can be packaged and sold in the marketplace. The entity that bought the loan can be assured it meets the guidelines set by these agencies. A loan that does not meet agency guidelines, has to be serviced by the originating bank or they have to find a buyer for it. The most common non-agency loan is a jumbo mortgage.
Condos are risky to lenders. There are a lot of moving parts: multiple owners, HOA’s, management companies, etc.. Like I mentioned, on any one day, a condominium project can flip to non-warrantable: Lawsuits, insurance expirations, poor budgeting, too many investors, too much commercial space, special assessments, etc.. To ensure a condo is warrantable, for each loan, the lender must have a condo questionnaire completed by the HOA or management company and gather all the various documents to be reviewed: insurance, bylaws, CC&Rs, budgets, etc.. Yes—every single time.
FAQs:
Q: Is there a list to review to see what’s warrantable?
A: Not for Fannie Mae and Freddie Mac. As I mentioned, a condo can change at any time. However, there are lists we review that list the non-warrantable condos.
Q: What about FHA and VA?
A: Yes! condos that have been approved by FHA and VA are published on their website. Now, they still must have valid insurance and a few other things, but usually we are good to go. If not on that list, to get a condo project approved by FHA or VA takes about 60-90 days and costs between $500 to $1000. Most entities don’t want to fiddle with this.
Q: Does the HOA or management company know if the condo is warrantable?
A: Probably not. They may know if it is not.
Q: Who are the best folks to ask to see if a condo may be warrantable?
A: You can always call me to do some digging, but the best resource are the agents who’ve sold units in the development. They’ll know if their listing was sold to a buyer doing a loan and perhaps what type of loan it was.
Q: What is a “condo questionnaire”?
A: I’ve attached one for you to review. These are the questions that must be answered for lenders and also list the documents we need
Q: I’ve heard about a “limited questionnaire”. What’s that?
A: for conventional loans, if the buyer is putting 10% or more down payment, most of the time we need a shorter questionnaire completed and need minimal documentation from the condo. These are easier to underwrite!!
Q: What are today’s rates for a warrantable condo?
A: Normal 30yr conventional rates: low 6% range today. Note that rates are much better at 25% down than 20% down on a condo. Why? Risk!
Q: What about non-warrantable condos?
A: I do these too! Lowest down payment is 10% on a 5yr ARM at 7.5%. Now, we do have a few programs where we can go 3% down but the borrower must fit into an income and geographic area for those.
As a buyer’s agent, the most important thing you can do? Get your client a loan officer who knows what they’re doing when it comes to condos and who also have multiple options no matter the warrantability. And, that’s me!
Thanks!
Joel
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