Know the Difference: Warrantable vs. Non-Warrantable vs. Condotel
There are 3 main types of condos; Warrantable, Non-Warrantable and Condotels, and when it comes to financing condos, these terms can be quite important. Here's a brief rundown of the differences between warrantable condos, non-warrantable condos, and condotels:
Warrantable Condos:
Definition:
These are condominium projects that meet specific guidelines set by agencies like Fannie Mae and Freddie Mac, making them eligible for financing under conventional loans.
Characteristics:
- A certain percentage (often over 50%) of the units are owner-occupied.
- No single entity owns more than 10% of the units.
- The condo association's budget is healthy, with adequate reserves for maintenance and repair.
- No litigation is pending against the condo association for structural and safety issues.
Financing:
Conventional Financing
- Minimum 5% down payment for primary residence
- Maximum insurance deductible for the master or interior policy is 5%
- Master insurance must have wind/hurricane coverage
- Master insurance must have Liability policy for associations/officers
- If any building in a flood zone, master must have a flood insurance policy
- Co-insurance, require a RCV within the past 36 months to confirm adequate coverage
- Unit owner obtain interior policy, HO6, with 100% replacement cost
- Minimum 10% budget reserve (exceptions possible)
- Access to annual budget & balance sheet within the past 90 days
- No deferred maintenance like safety, soundness, structural integrity, or habitability concern
- Special assessment will be reviewed
- Primary, Secondary or Investment property
- Minimum credit score 620
- On going litigation or construction defect, ineligible for warrantable program
- Projects that are managed and operated as a hotel or motel, even if the units are individually owned, are ineligible
Non-Warrantable Condos:
Definition:
Condominium projects that do not meet the standard guidelines set by Fannie Mae or Freddie Mac.
Characteristics:
- High investor concentration (many units rented out).
- A single entity might own multiple units (over the typical 10% threshold).
- The condo association's budget might be unstable or in deficit.
- Litigations might be pending against the condo association.
- The project might be newer with a significant number of unsold units.
Financing:
- Minimum down payment 20% for primary residence
- Maximum insurance deductible for master policy is 10%
- Unit owner obtain interior policy, HO6, with 100% replacement cost
- Can close in LLC
- Minimum 600 square foot per unit
- Litigation acceptable as long as not structural
- Commercial space less than 50%
- Minimum 5% budget reserve
- Primary, Secondary or Investment property
- Minimum credit score 680
Condotel:
Definition:
A condo project that operates much like a hotel, where owners can rent out their units on a nightly basis, and there's often an in-house management company that handles rentals.
Characteristics:
- Units might come fully furnished.
- The project offers hotel-like amenities such as a reception desk, on-site restaurant, daily cleaning services, etc.
- Owners might have the option (or sometimes a mandate) to place their units in a rental pool managed by the in-house company.
Financing:
- Projects that are managed and operated as a hotel or motel, even if the units are individually owned
- Primary, Secondary or Investment property
- Minimum 500 square foot per unit
- Fully functional kitchen & bedroom
- Can close in LLC
- Minimum credit score 680
If you're considering buying a unit in any of these types of condo projects, contact the A Team and let us guide you through the financing options available to you.
Note: FHA & VA financing available for already approved condominiums. Reach out for the current approved list.
We hope this article was of value to you. For more great tips, bookmark our site and for all your mortgage needs, visit the A Team at TMFFMS.
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