The DC market is full of condos of all shapes and sizes, with new projects breaking ground every time we turn around. Some of the biggest question marks in real estate can usually be found when a client is trying to purchase a condo. It’s time to turn these questions into answers!
The first thing that all agents should know is what makes a condo non-warrantable? A non-warrantable condo is when the loan cannot be purchased by Fannie Mae or Freddie Mac (conventional financing). This can be determined after the condo questionnaire is completed for a given condo project. Although each loan investor has their own guidelines, here are the most common factors that can cause a condo to be “non-warrantable” (Note: it only takes one of the below items to cause the entire project to be non-warrantable):
- If one person (entity) owns more than 10% of the units in a building
- If current HOA dues for the condo project are 15% or more delinquent
- If 25% of total square footage of the condo project is commercial
- If more than 30% of the project is occupied by investor/renter and you are trying to buy as an investor
One of the biggest misconceptions in condo financing is #4. The “investor ratio” only comes into play when a buyer is purchasing as an investor. If the buyer is purchasing a condo as their primary residence, the investor ratio does not affect their ability to receive conventional financing.
Let’s think about this from a practical point of view for a second. If the investor ratio is high in a condo project, and Fannie and Freddie want to lower this ratio by adding more primary residents, why would they create a rule to make this more difficult for the primary resident borrower to buy? Fannie and Freddie want the primary resident purchaser to buy, so that they lower the investor ratio. The investor ratio cannot be lowered if there is a rule prohibiting someone from buying as a primary resident. In conclusion, when one of your buyers is looking to purchase a new condo as a primary residence, #4 will not be what stops them!
You may now be asking yourself “but if any of these other items are causing a condo to be non-warrantable, how do I get my client into that condo?” Great question! There are two solutions at this point. The first is to buy in cash, which may not be the most feasible for most buyers. The second is to find a local lender with portfolio power that can provide financing for “outside the box” scenarios.
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