In this blog, we will cover what is a condotel and how condominium mortgages work. condominium mortgages is a non-conforming portfolio loans. Condotels are classified as non-warrantable condos. A condotel unit is a condominium unit inside a hotel that is privately owned by an individual and/or entity. Condotel Units, also known as Condo-Hotel, have been very popular from the mid-1990s until 2008 when the real estate and financial markets crashed. Gustan Cho Associates are experts in condominium mortgages.

Condotel Unit Benefit Using The Condo and Renting the Unit When Not in Use

Condotel Unit Benefit Using The Condo and Renting the Unit When Not in Use

A condotel unit owner can enjoy the condotel unit as a second or vacation home one or two months out of the year and can rent out the condotel unit the remaining time of the year he or she does not use it. The Condo-Hotel management staff rents out the condotel unit if you are a member of the Condo-Hotel Rental Program for condotel unit owners.

How Condo-Hotel Owners Make Revenue While Enjoying Condotel Unit

The great part about being a condotel unit owner is that the Condo-Hotel management staff can take care of your condotel unit and rent out your condotel unit not for a monthly fee but for a percentage of the rental income your unit receives. For example, if your condotel rents for $200 per night, the Condo Hotel management will collect the $200 and take a percentage of the $200. The amount they take depends on the Condo Hotel complex but normally the Condo Hotel complex takes anywhere between 30% to 50%. If the condotel unit does not rent, you are not liable to pay anything.

What Are Non-Warrantable Condominium Mortgages?

A non-warrantable condominium is a condominium building that does not conform to Fannie Mae and/or Freddie Mac condominium mortgage guidelines and cannot be financed through a conventional loan program. The main reason why a condominium is classified as a non-warrantable condominium unit is that 51% or more of the condo units are not owner-occupied. In order for a condominium unit to be classified as a warrantable condominium, it needs to have 51% of the condominium owners live in the condominium as owner-occupant.  . Non-warrantable condos are 51% or more investor-owned and are rental condominium units.

Non-Warrantable Condo Loans Condominium Mortgages

condominium mortgages And Non-Warrantable Condo Loans

Condotel loans And Non-Warrantable mortgage loans came to an abrupt halt after the 2008 real estate and credit meltdown and most Condo-Hotel unit owners have given up on looking for a portfolio mortgage lender who can do condotel and non-warrantable condominium mortgage loans. If you want to purchase a condotel unit or a non-warrantable condominium or are interested in refinancing your condotel or non-warrantable condominium unit, whether it is for a better rate or to do a cash-out refinance, the good news is that condominium mortgages and non-warrantable condo financing is becoming more readily available.

Lending Guidelines On Non-Warrantable Condominium Mortgages

Here are the general condominium mortgages And Non-Warrantable Condominium Unit Lending Requirements, however, every portfolio mortgage lender may have their own set of lending requirements. Portfolio lender that offers 3/1 ARM, 5/1 ARM, and 7/1 ARM amortized over 30 years. Portfolio mortgage lenders generally do not offer 30-year fixed-rate mortgage loans.

What Are Adjustable Rate Mortgages on Condominium Mortgages?

ARM are Adjustable Rate Mortgages are 30-year loan programs, however, there is a fixed rate period and after the fixed-rate period expires, the interest rate will adjust every year for the remainder of the 30-year loan term.  The newly adjusted mortgage interest rate will be set by adding the margin plus the index.

How Do ARMs Work on Condominium Mortgages?

How Do ARMs Work on condominium mortgages?

The margin is fixed but the index can change depending on where the index is at the time the mortgage interest rate is due to adjust. There are various indexes and it depends on the lender on which index they will decide. COFI, LIBOR, and CMT are some common indexes that lenders choose from.  Most condotel mortgage lenders require that Condotel and/or non-warrantable condominium units need a kitchen and at least one bedroom and are at least 500 square feet. Most condotel lenders require 75% loan to value.on primary home and second home condotel units. This includes Condotel refinance mortgage loans as well as cash-out refinance mortgage loans.

Down Payment Requirements on Non-Warrantable Condominium Mortgages

Most portfolio lenders will require the following: a non-warrantable condominium requires an 80% loan to value on both purchase and refinance mortgage loans. Most condotel mortgage lenders require a minimum credit score of 680 FICO but prefer borrowers to have 700 FICO credit scores or higher. Condo Hotel Complex and/or Non-Warrantable Condominium Complex needs to be in good standing both financially and structurally.  Loan sizes by most portfolio lenders range from $100,000 to $3,000,000 plus.

What Are The Comparison of Warrantable vs Non-Warrantable Condominium Mortgages

Since condotel loans and non-warrantable condo loans are portfolio loans and do not need to have to meet Fannie Mae or Freddie Mac Guidelines, the lending standards are set by the portfolio lender and the portfolio lender is the institution that sets the rules. Most portfolio lenders require one-year reserves for both the primary residence as well as the condotel unit and/or non-warrantable condominium unit. Again, this requirement is up to the individual portfolio mortgage lender.

Debt-to-Income Guidelines on Non-Warrantable and Condo-Hotel Financing

Debt-to-Income Guidelines on Non-Warrantable and Condo-Hotel Financing

Debt to income ratios cannot exceed 43% which includes proposed Condotel or Non-Warrantable Condo Purchase as well as refinance mortgage loans. Reserves are required but do not have to be cash reserves. Retirement accounts, investment accounts, and other liquid accounts can be used as reserves. Typical reserves required are one-year P.I.T.I. (Principal, Interest, Taxes, Insurance) per each property the borrower owns.  For example, if the borrower has a main residence and his P.I.T.I. is $1,000 per month and his proposed P.I.T.I. on his proposed condotel and/or non-warrantable condominium purchase is $1,000 per month, then the portfolio lender will require $24,000 in reserves.

Gustan Cho Associates is a full-service national lender with no overlays on government and conventional loans. Gustan Cho Associates has no lender overlays on FHA, VA, USDA, and Conventional Loans. Our team of licensed and support personnel are available 7 days a week, on evenings, weekends, and holidays. Borrowers who need to qualify for a mortgage with a national lender with no overlays can contact us at Gustan Cho Associates at 262-716-8151 or text us for a faster response. Or email us at [email protected] all FHA Lenders have the same mortgage guidelines on condominiums.