Did you know that lenders look at a lot more than just your financial qualifications when you buy a condo? That goes for any type of property really, but condos have a special characteristic that makes lenders nervous about giving you a loan.
When you a condo, you buy the interior unit. The exterior of the property, as well as all common areas, are shared amongst all condo owners in the development. This means that the lender has to take all other buyers into consideration as well. In order to do that, they take a close look at the association that runs the development. If they don’t like what the association has to offer, lenders consider the condo an unwarrantable condo.
If a condo isn’t warrantable, you can’t use Fannie Mae, Freddie, Mac, FHA, or VA financing on it. So how do you find out which condos are warrantable?
Check the Lists
HUD (for FHA loans) and the VA have lists you can consult to determine if a condo is warrantable. You can check the FHA list here and the VA list here. If you find your development’s name on the list, you are in good shape. If you don’t, then you have to do some more digging.
If you are working with a real estate agent, or even your lender, they can help you determine if a condo is warrantable. In other words, did Fannie Mae, Freddie Mac, the FHA or VA already approve it? If not, it doesn’t mean the condo isn’t warrantable. It may mean that no one has tried to get the association approved yet. As long as it meets certain requirements, chances are the entity you want to get a loan program from will approve it.
What Associations Need for Approval
So what do associations have to prove in order to secure conventional or government-backed financing on their condos? They need the following:
- The association doesn’t have any pending litigation against it
- At least 85% of the occupants have paid their association dues on time
- At least 51% of the condos are owner-occupied
- There isn’t one owner than owns more than 10% of the units
- No more than 25% of the development is for commercial use
These are the basic requirements. Each association may have other details they need to cover with the coinciding entity before getting approved. Luckily, it’s not on your shoulders to get all of this information. The lender or realtor will do the work for you. Keep in mind, though, associations don’t have to get approved. If they don’t want to deal with the hassle or they have enough ‘other’ borrowers that don’t need proof of a warrantable condo, they may not pursue approval.
If you are unsure if a condo you are interested in buying is warrantable, as your realtor or lender. If you want to explore yourself, you can use one of the above links for the government-backed loans. Chances are if a condo already has FHA or VA approval, then they will pass the conventional requirements as well.