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Condo Mortgage Requirements (Warrantable vs. Non-Warrantable)

Condo mortgage requirements include both borrower qualification and a project-level review that evaluates the condominium association's financial health, insurance coverage, ownership concentration, and litigation status. Warrantable condos meet agency (Fannie Mae, Freddie Mac, FHA, VA) eligibility standards for standard financing, while non-warrantable condos require portfolio or non-QM lending at higher rates and down payments.

Key Takeaways

  • Condo financing requires both borrower underwriting and a separate project-level review that evaluates the entire condominium association, not just the individual unit.
  • Warrantable condos meet Fannie Mae/Freddie Mac eligibility criteria and qualify for standard conventional financing terms. Non-warrantable condos do not.
  • Key warrantability factors include owner-occupancy ratio, single-entity ownership concentration, commercial space percentage, association insurance, reserve funding, and litigation status.
  • FHA condo financing requires the project to be on the FHA-approved list or to qualify under Single-Unit Approval. VA requires project-wide VA approval.
  • Non-warrantable condos can still be financed through portfolio lenders or non-QM programs, but typically require 20-25% down payment and carry higher interest rates.
  • Condotels (condo-hotel units) are a specific non-warrantable category that requires specialty financing with significant down payments.
  • Some non-warrantability issues are temporary and correctable; understanding the specific disqualifier can guide the path to resolution.
  • Inadequate HOA insurance and underfunded reserves are among the most common and most fixable reasons projects fail warrantability checks.

How It Works

The Condo Project Review Process

When a borrower applies for a mortgage on a condominium unit, the lender initiates a two-track underwriting process. The first track is the borrower-level review, which is identical to any mortgage application: income, assets, credit, and employment are evaluated against program guidelines. The second track is the project-level review, which is unique to condo transactions.

For conventional loans, Fannie Mae offers several project review types. The Full Review requires the lender to collect and evaluate comprehensive project documentation including the association’s budget, reserve study, insurance certificates, CC&Rs (covenants, conditions, and restrictions), bylaws, litigation disclosures, and unit-mix data. The Limited Review is available for certain transactions (typically refinances or purchases with lower LTVs) and involves less documentation but still verifies key eligibility criteria. The Project Eligibility Review Service (PERS) is used for projects that cannot meet standard review criteria but may qualify under a case-by-case exception approved by Fannie Mae .

The lender or a third-party condo review vendor collects the required documentation from the HOA management company. This process can take days to several weeks depending on how quickly the management company responds and how complete the documentation is. Delays in condo project review are a common source of closing timeline extensions.

HOA Questionnaire and Documentation

The centerpiece of the project review is the HOA questionnaire, a standardized form that the management company completes with project-specific data. The questionnaire covers total units in the project, number of owner-occupied vs. rental units, number of units owned by a single entity, percentage of commercial space, annual budget and reserve allocation, delinquency rate on HOA dues, pending or anticipated special assessments, current or pending litigation, insurance policy details, and any restrictions on leasing or occupancy.

Lenders pay close attention to the delinquency rate on association dues. If more than 15% of unit owners are 60 or more days delinquent on their dues, the project may fail the warrantability check. High delinquency rates indicate financial stress within the association and increase the risk of special assessments or deferred maintenance .

The insurance certificates are reviewed against specific lender requirements. The master hazard policy must cover replacement cost of the building structure. General liability must meet minimum per-occurrence limits. Fidelity coverage must protect against embezzlement or mismanagement of association funds. Flood insurance is required if the project is in a flood zone. Gaps in insurance coverage are a frequent cause of project review failures and can often be resolved by the HOA board purchasing additional coverage.

How Warrantability Affects Loan Terms

For warrantable condos, conventional loan terms are comparable to single-family residences, though Fannie Mae and Freddie Mac apply small loan-level price adjustments (LLPAs) specifically for condos. These adjustments increase the effective rate by approximately 0.125% to 0.75% depending on credit score, LTV, and the specific condo classification . Despite the adjustments, warrantable condo financing is accessible and competitively priced.

For non-warrantable condos, the financing landscape shifts significantly. Portfolio lenders typically require minimum down payments of 20-25% and may charge rates 0.50% to 1.50% above market. Some non-warrantable programs have maximum LTV limits of 75% or even 70%, meaning the borrower needs a 25-30% down payment. Loan amounts may be capped below conventional limits. Cash-out refinancing on non-warrantable condos is particularly restricted, with some lenders not offering it at all.

The appraisal for a condo unit uses the Individual Condominium Unit Appraisal Report (Form 1073), which includes both the unit evaluation and a project analysis section. The appraiser evaluates comparable unit sales within the project and in competing projects, the condition of common areas, and any observable deferred maintenance or environmental concerns affecting the project. Interior-only appraisals were temporarily expanded during the pandemic era and some relaxed standards have been retained for certain transaction types .

Steps to Verify Warrantability Before Purchasing

Buyers should verify condo warrantability as early as possible in the purchase process. Recommended steps include asking the listing agent or HOA management company whether the project has been recently approved under a Fannie Mae or Freddie Mac review, checking the FHA-approved condo list on HUD’s website if using FHA financing, checking the VA-approved condo list if using VA financing, and requesting a preliminary HOA questionnaire before going under contract. Working with a lender experienced in condo financing can help identify potential warrantability issues before they cause closing delays or deal failure.

Related topics include single-family residence mortgage guidelines, townhouse and pud mortgage guidelines, co-op apartment mortgage rules, and property type impact on loan eligibility.

Key Factors

Factors relevant to Condo Mortgage Requirements (Warrantable vs. Non-Warrantable)
Factor Description Typical Range
Owner-Occupancy Ratio Percentage of units in the project that are owner-occupied or second homes rather than investor rentals. Higher ratios indicate lower project risk. Fannie Mae generally requires 50%+ owner-occupancy. FHA has its own thresholds. Resort/vacation projects often fail this criterion .
HOA Insurance Adequacy The association's master hazard policy, liability coverage, and fidelity bond must meet lender-specified minimums. Gaps in coverage are a common disqualifier. Replacement cost coverage for structure, $1M+ liability per occurrence, and fidelity coverage equal to 3+ months of assessments are typical requirements .
Reserve Fund Allocation The percentage of the annual HOA budget allocated to reserves for future capital expenditures. Underfunded reserves increase the risk of special assessments. Fannie Mae requires minimum 10% of annual budget to reserves. Well-funded projects allocate 15-25% or more.
Single-Entity Ownership Concentration The maximum percentage of units that can be owned by any single investor or entity. Excessive concentration creates market risk. Typically capped at 10-20% depending on project size and agency. Smaller projects may have stricter per-unit limits .

Examples

Warrantable Condo Purchase with Standard Conventional Terms

Scenario: A borrower purchases a condo unit in a 120-unit project for $320,000 with 15% down. The project has 72% owner-occupancy, fully funded insurance meeting all lender requirements, 18% of the annual budget allocated to reserves, no pending litigation, and no single entity owns more than 5% of units. The lender conducts a Full Review.
Outcome: The project passes the warrantability check on all criteria. The borrower receives conventional financing with a condo-specific LLPA of approximately 0.375% added to the base rate. PMI applies at the 85% LTV. The total cost is modestly higher than an equivalent single-family purchase but remains within standard agency terms. The condo review adds 5-7 business days to the underwriting timeline.

Non-Warrantable Condo Due to Investor Concentration

Scenario: A borrower wants to purchase a unit in a 40-unit beachfront condo building for $475,000. The project has only 35% owner-occupancy because the remaining 65% of units are investor-owned vacation rentals. The project otherwise meets all other warrantability criteria.
Outcome: The project fails the owner-occupancy requirement for conventional and FHA financing. The borrower must use a portfolio lender or non-QM program. The available option requires 25% down ($118,750 instead of the conventional minimum of approximately $47,500 at 10% down), and the interest rate is 0.875% above the rate the borrower would have received on a warrantable unit. Over a 30-year loan term, the rate premium adds approximately $75,000-$85,000 in additional interest cost .

FHA Purchase in Unapproved Project Using Single-Unit Approval

Scenario: A first-time buyer with limited savings wants to use an FHA loan to purchase a condo for $210,000. The project is not on the FHA-approved list. The project has 55% owner-occupancy, adequate insurance, and no pending litigation.
Outcome: The lender applies for FHA Single-Unit Approval, which evaluates the individual unit and project against a streamlined set of criteria. Because the project meets the SUA requirements (owner-occupancy above 50%, adequate insurance, no adverse litigation), the individual unit is approved for FHA financing. The buyer proceeds with 3.5% down ($7,350) under FHA terms. The SUA process adds approximately 1-2 weeks to the overall timeline .

Common Mistakes to Avoid

  • Assuming all condos qualify for conventional or FHA financing

    Many condo projects, particularly in resort areas, new developments, and buildings with high investor concentrations, are non-warrantable. Buyers should verify warrantability before going under contract, especially if they are relying on low-down-payment agency financing.

  • Not requesting the HOA questionnaire early in the purchase process

    The HOA questionnaire contains critical data about the project's financial health, insurance, litigation status, and ownership mix. Waiting until underwriting to discover a warrantability problem can kill the deal after the buyer has spent money on inspections and appraisal. Request the questionnaire during the due diligence period.

  • Overlooking HOA special assessments and their impact on qualification

    Special assessments (one-time charges levied on unit owners for major repairs or improvements) can significantly increase the monthly housing cost. Lenders include any ongoing special assessment payments in the DTI calculation. Undisclosed or recently announced special assessments can cause qualification failure if they were not factored into the original debt analysis.

  • Ignoring the resale implications of non-warrantable status

    Purchasing a non-warrantable condo limits the pool of future buyers because they will face the same financing restrictions. This can depress resale values and extend marketing times. Buyers should factor warrantability status into their long-term investment analysis, not just the immediate purchase transaction.

Documents You May Need

  • HOA questionnaire completed by the management company
  • Condominium association master insurance certificates (hazard, liability, fidelity)
  • Current year association budget and most recent reserve study
  • CC&Rs (Declaration of Covenants, Conditions, and Restrictions)
  • Association bylaws
  • Litigation disclosure or attorney opinion letter regarding pending claims

Frequently Asked Questions

What is the difference between a warrantable and non-warrantable condo?
A warrantable condo meets all eligibility requirements set by Fannie Mae and Freddie Mac for conventional financing. Key requirements include minimum owner-occupancy ratios, adequate insurance, sufficient reserves, no adverse litigation, and no excessive single-entity ownership concentration. A non-warrantable condo fails one or more of these criteria and cannot be financed through standard agency programs.
How much more does it cost to finance a non-warrantable condo?
Non-warrantable condo financing typically requires a larger down payment (20-25% minimum vs. 3-5% for warrantable) and carries interest rates approximately 0.50% to 1.50% higher than comparable warrantable rates. Some portfolio lenders charge additional origination fees. The total cost premium over the life of the loan can be substantial.
Can I get an FHA loan on a condo?
Yes, if the project is on the FHA-approved condominium list or qualifies under FHA Single-Unit Approval. You can search the FHA-approved list on HUD's website. If the project is not approved, ask your lender whether Single-Unit Approval is feasible based on the project's characteristics.
How long does the condo project review process take?
The project review typically adds 5-10 business days to the underwriting timeline, depending on how quickly the HOA management company provides the required documentation. Delays are common when management companies are slow to respond or when the documentation is incomplete, requiring follow-up requests.
What is a condotel and how does it affect financing?
A condotel is a condominium unit within a hotel-operated building where individual units can be placed in a rental pool and managed as hotel rooms. Condotels are non-warrantable under all agency programs. Financing requires specialty lenders with typical down payments of 25-30% and rates significantly above standard condo rates.
Does the HOA fee affect my mortgage qualification?
Yes. The monthly HOA fee is included in your total housing expense (along with principal, interest, taxes, and insurance) when calculating your debt-to-income ratio. High HOA fees reduce the loan amount you can qualify for. Any special assessments with ongoing monthly payments are also included in the DTI calculation.
Can a non-warrantable condo become warrantable over time?
Yes. If the disqualifying issue is resolved (for example, the investor-ownership ratio declines as more owners occupy their units, or the HOA updates its insurance coverage), the project can become warrantable. Working with the HOA board to identify and correct specific issues can benefit all unit owners by opening access to standard financing.
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