Condominium projects come in all kinds of varieties. What many may not know is that financing a condominium is different than financing a traditional single family home.
Condominiums are typically classified into a few different categories:
– Warrantable
– Non-Warrantable (will eventually become warrantable)
– Non-Warrantable (likely to never become warrantable)
Warrantable condominiums are condominium projects that meet the requirements of Fannie Mae and/or Freddie Mac. These condominium projects are generally allowed the same financing options as a traditional single family home with subtle differences (which we cover below).
Non-warrantable condominiums that will eventually become warrantable are projects where the development is newer and does not currently meet the requirements that Fannie Mae and/or Freddie Mac dictate. However, as the project is completed it is such that it will meet the warrantable requirements at some point in the future. These condominium projects are generally allowed the same financing options as a traditional single family home with subtle differences (which we cover below).
Non-warrantable condominiums that will likely never become warrantable are condominium projects where the project has characteristics that preclude it from meeting Fannie Mae and/or Freddie Mac guidelines. These projects are typically subject to higher rates and terms than warrantable or non-warrantable condominiums that will become warrantable.
Characteristics that typically render a project non-warrantable in this category include but are not limited to:
– Percentage of the project dedicated to commercial use
– Terms in the bylaws that do not conform to Fannie Mae/Freddie Mac Guidelines (can be changed via an amendment)
– Project budgets that do not conform to Fannie Mae/Freddie Mac Guidelines (only applicable to new condo projects or projects that require a full review)
– Pending litigation- Percentage of units owned by one person/entity (minor litigation may be allowed)
– Percentage of units past due on association dues (only applicable to projects that require a full review)
– Percentage of units that are rentals (only applicable to new projects or a full review of an investment property)
– Other characteristics
Lenders typically require a review of a condominium project as part of the loan approval process. These reviews typically require the condominium association to complete a questionnaire, provide a current budget, provide bylaws and potentially other documentation to determine whether or not the association meets the requirements of Fannie Mae and/or Freddie Mac.
Until a lender has gathered all of the required information on an association, it may be impossible to know for sure which classification your project may fall under. This means that we may start to process your loan under a specific classification only to find out that it would fall into a different less favorable classification. This may result in a change in loan terms and options available to you. We do our best to gather all of the required documentation as quickly as possible. But it is possible we will not be able to make a final determination until we are several weeks into the approval process.
Loan terms and options available to clients can vary depending on the type of classification, down payment and other variables. Generally speaking the best terms are available to projects that are considered warrantable or non-warrantable but will become warrantable. Additionally, larger down payments can favorably impact your loan terms.
For owner occupied transactions in established projects, a limited review is required with down payments of 10% or greater. This offers the odds for approval where the least amount of eligibility issues apply. FLORIDA condominium projects require a 25% down payment to be eligible for a limited review.
Financing condominiums requires knowledge and expertise that not every lender will have. Lenders who do not have a competitive product or expertise in this area will try to scare clients away from a condominium. We offer a number of very competitive options for financing condominiums allowing our clients options and flexibilities not offered by other. This way you can buy your dream condo.
We have been the preferred lender for a number of condo projects and for a number of agents who specialize in these types of properties.
Contact us for more details on how we can help you.
SPECIAL NOTE ABOUT CONDOMINIUM PROJECTS IN FLORIDA
Florida condominium projects are subject to more stringent guidelines and reviews. Because the condominium review process in Florida is more restrictive, you have a higher probability of having a non-warrantable condominium project, which will impact your final loan terms.