Looking to Buy a Denver Condo?-What's a Non-Warrantable Condo and How to Finance One

great article about Warrantable Condominium Complexes...I have various clients that need to resort to specific lenders that will on lend on non-warrantable condo complexes....Is yours?

article from ownyourhomes.com

Getting a home loan or mortgage in NYC can be complicated especially if you are trying to purchase a condo that does not meet Fannie Mae and Freddie Mac requirements – also referred to as a non-warrantable condo. This article provides an in-depth explanation of what a non-warrantable condo is and how you can finance one. It details the various requirements and documents necessary for getting a home loan in this sort of unique nyc condo.
What is a Non-Warrantable Condominium?
A Non-Warrantable condo is any condo that does not meet Fannie Mae guidelines. There are many rules and regulations to “Warrant” a condo with Fannie Mae. The five requirements for Fannie Mae to approve or warrant a loan in condo follow below.
Fannie Mae Requirements for Warrantable Condos
1. No more than 10% of the total units in the complex are allowed to be owned by a single entity (including the sponsor).
2. The number of owner occupied apartments must equal 70% of the total units (only apartments owned and used as a primary or secondary residences are considered owner occupied).
3. There can be no litigation concerning the structure/soundness of the building (ex. when the board decides to sue the developer for shoddy construction)
4. There must be a 10% reserve (of the yearly income) built into the annual budget that is recurring year after year.
5. No more than 20% of the building’s total square footage is commercial space.
What are the challenges with a Non-Warrantable Condominium?
Sellers have an expectation of credit(mortgages) being available to prospective buyers. It is the realtor’s responsibility to inform the seller/buyer that a building is Non-Warrantable. It’s important to note that a seller will not necessarily know that building is non warrantable. Buildings often tend not to make this information widely known. A realtor or a mortgage broker is best equipped to figure out this information because they will know what rules of warrantability are and can easily determine whether a building is warrantable or not warrantable. If you’re considering selling be sure to check your realtor, lawyer or mortgage broker to see if your building qualifies for a Fannie/Freddie/FHA loan. Working with a mortgage banker experienced with Non-Warrantable lending will greatly enhance your chances of successfully marketing and selling/closing within a particular building.
How can Non-Warrantable Condominiums be financed?
The only lenders that will allow financing in Non-Warrantable projects are portfolio lenders – i.e. local banks that do not sell their loans to Fannie Mae and Freddie Mac. Large national banks, in contrast, are not portfolio lenders because they do sell loans to Fannie Mae and Freddie Mac. It can be a huge challenge to get a loan in a non warrantable condo because there are many of these portfolio lenders. Each has their own guidelines and there is no standardized lending as seen with Fannie Mae. Navigating these guidelines is a full time job that should be left to a professional mortgage banker.
How can Non-Warrantable Condominiums be effectively marketed?
You should not market a unit in Non-Warrantable Condominiums any differently than you would a unit in a warrantable condo building. The only difference you will encounter is in the contract of sale. New developments give mortgage contingencies subject to pre-approved lenders. This is also the case for re-sale contracts on Non-Warrantable projects. It is imperative to add the preferred lender and contingency into this contract. By asking the buyer to get pre-approved with a lender that the seller has already approached and confirmed they can lend in the building, the seller insures that the buyer will not be able to walk away from the contract, if a lender they chose does not end up giving them a loan due to non-warrantability.
The Documents, my mortgage lending company, H.O.M.E. Mortgage Bankers, Requires for Approving Loans in Non-Warrantable Building
1. A completed Condo/Co-op Questionnaire
2. Current budget
3. Master Insurance Policy for the project
Client Story
I once had a client who made three attempts to refinance their unit at 110 Livingston Street in Brooklyn Heights to no avail. The client tried to acquire loans from three large banking institutions, but none of them would recognize 110 Livingston Street as a safe investment. Although large banks typically do not finance in non-warrantable buildings, local, boutique banks, like H.O.M.E. Mortgage Bankers, often do. When the client came in we did a quick intake and had her fill out a standard application. Because we pre-approved the building up front, we were able to quickly provide the client with a good faith estimate and from there the mortgage application process flowed smoothly and the client was able to close on their refinance shortly thereafter.