The Condo Conundrum
Warrantable v Non-Warrantable: Which is which and how this affects financing
Park City and the surrounding areas offer a wide variety of condominium projects, everything from multimillion on-mountain units to one bedroom apartment style units out of town. Financing the purchase of a condo is not necessarily difficult but there are a few factors that should be taken into account. The following details can help prospective buyers and realtors alike as they evaluate different condo projects and the amenities they offer.
Warrantable is a designation that is given to condo projects by Fannie Mae when the project meets their guidelines. Warrantable condos are relatively easy to finance and allow for most existing types of financing, conforming, jumbo, and government loan programs. The guidelines of what constitutes a warrantable project are easily found with a simple Google searches of warrantable condo requirements per Fannie Mae and buyers and agents can get familiar with the terms anytime. In a nut shell a Warrantable project is one where the HOA is not party to major ongoing lawsuits, the budget has a 10% reserve line item, one owner does not own more than 20% of the units, no existence of timeshares in the project, and the condo has no hotel features. This is a short list of the most common items that come up that make a project Warrantable or not. If any of these situations exist, among the other not listed here, the project will be considered Non-Warrantable.
A Non-Warrantable condo project is one that fails to pass the Fannie Mae test outlined above. A lawsuit or a lack of reserves could make a project Non-Warrantable, among other items on Fannie Mae’s list. In this case conventional and government financing is usually not obtainable. Portfolio lenders, smaller banks, and other avenues are usually needed to provide financing. Financing terms are usually still pretty attractive for Non-Warrantable condo units but rates and terms may be not quite as competitive as what a buyer would see for a Warrantable project. Buyers should expect Non-Warrantable projects to require slightly longer underwriting timeframes as well due to the nature of a Full Review on the project which will require all recorded governing docs (CCRS, bylaws, etc) budgets, and insurance information. Non-Warrantable projects can get back to Warrantable status if they correct the issue that is causing the designation. For instance, a lawsuit can be settled and the project then cleared, a budget deficiency can be made up, or an owner with more than 20% of the units can sell off some of their holdings. In these cases a project may become Warrantable again in the future and provide more attractive financing options.
Here at Intermountain Mortgage we go a step further and make sure that we have investors that understand resort condos and our specific needs in Park City. Many investors and mortgage underwriting groups inaccurately label warrantable condos as condo-tels because they don’t understand that a resort condo project can often have private nightly rental but still be warrantable. We work with loan sources that do understand this so we can provide the best terms on as many condo developments as possible.
Contact Ian Poor at Intermountain Mortgage