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.
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