Non-Warrantable And Condotel Mortgage Loans Reserve Requirements

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This ARTICLE On Non-Warrantable And Condotel Mortgage Loans Reserve Requirements Was Updated On December 2nd, 2018

What are Non-Warrantable And Condotel Mortgage Loans Reserve Requirements

There are Non-Warrantable and Condotel Mortgage Loans Reserve Requirements for buyer.

Financing Guidelines on non-warrantable and condotels are different than government and conventional mortgage guidelines.

  • Non-Warrantable and Condotel Loans are not sold to Fannie Mae or Freddie Mac
  • Non-Warrantable and Condotel Mortgages are portfolio loans
  • These loans are held by portfolio lenders for the duration of the loan
  • The interest rate is slightly higher on Non-Warrantable and Condotel Financing compared to conforming loans
  • This is Due to not being able to resell these loans on the secondary market
  • Non-warrantable and condotel lenders seek extra caution when originating and funding these loans

In this article, we will discuss and cover mortgage guidelines on condotels and non-warrantable condominiums.

Difference Between Non-Warrantable Condominium

Non-Warrantable Condotels are the following:

  • Condominium unit in a condo complex with over 51 of the condominium unit owners are non-owner occupants
  • Warrantable condos is condominium units that consists of 51% or more owner-occupant units
  • A non-warrantable condo complex can become a warrantable condo complex if the owner-occupant mix becomes 51% or more
  • Fannie Mae and Freddie Mac will not buy non-warrantable condominium Conventional Loans
  • A warrantable condominium complex can become a non-warrantable condominium complex when the owner-occupant mixture becomes less than 50%

Non-Warrantable condos are regular condominium complex:

  • The classification of warrantable versus non-warrantable is due to the owner-occupant versus non-owner occupant percentage

What Are Condotel Condominiums

What Are What are Condotel Condominiums

Condotel Condominiums are the following:

  • A condotel or condo hotel is a condominium unit that is within a hotel or a hotel like setting
  • Large hotel chains such as the Marriott, Hyatt, Westin, Trump Tower, has a certain percentage of their hotel units classified as condotels where it is owned by private owners
  • Condotel units have a rental desk
  • Condotel has a homeowners association where it has its own rules and regulations governing the condotels
  • Condotels can be rented and/or used by the condotel owners

The condotel HOA rents the condotel units:

  • This is done when owners are not occupying it
  • HOA gets compensated with a percentage of the revenues collected by rent

Condotels can be used as a primary residences, second homes, or rentals.

Do All Lenders Require The Same Non-Warrantable And Condotel Mortgage Loans Reserve Requirements

Non-Warrantable and Condotel Lenders normally require Non-Warrantable And Condotel Mortgage Loans Reserve Requirements.

  • Not every lender has the same type of reserve requirements
  • Some lenders may require three months reserves while other lenders one-year reserves

However, the general terms on Non-Warrantable And Condotel Mortgage Loans Reserve Requirements are as follows:

  • Non-Warrantable and Condotel mortgage loan borrower that they have at least one year reserves of principal, interest, taxes, insurance, and homeowners association dues 
  • Some lenders may require reserves for the subject Non-Warrantable and/or Condotel proposed purchase plus one-year reserves on all other properties the borrower owns
  • The reserves do not have to be in cash but can be in other assets such as investment and retirement accounts

The first three months of principal, interest, taxes, insurance, and homeowners association dues need to be in cash:

  • The rest of the reserves can be in stocks, bonds, and retirement funds

They do not require that taxes and property taxes be escrowed but underwriters will want to see reserves during the underwriting process.

Enforcement or Escrows on Reserves after Closing

The importance of enforcement or Escrows on reserves after closing

The Non-Warrantable and Condo Hotel Lender will not be enforcing the reserve requirement after closing the borrower closes on their condominium purchase.

  • Borrowers who deplete their reserves after the home loan closing will not be in default of their mortgage terms
  • However, it is recommended that homeowners have reserves in the event for extenuating circumstances may arise

Definition Of Reserves

Reserves are funds that are the borrower’s own funds and cannot be gifted. Lenders just want to see that the borrower has seasoned reserves.

Examples of reserves are the following:

  • Funds in checking and savings accounts
  • Funds in money market accounts
  • IRA, 401K, Retirement Account
  • Pension Accounts
  • Securities Investment Accounts

Any other documented asset account that has been seasoned and belongs to the borrower.

We will take a case scenario where an Illinois homeowner purchases a second home Florida condotel unit:

  • Homeowners of a primary owner-occupied single-family residence in Illinois with a monthly P.I.T.I. of $1,000 per month and the proposed purchase Condotel P.I.T.I. of  $1,000 per month
  • This borrower will need one year’s worth of reserves for the primary residence of $12,000 as well as $12,000 worth of the new Condotel P.I.T.I. for reserves
  • The lender would need to see that you have a total of $24,000 in liquid assets of which $3,000, possibly $6,000, have to be in cash.
  • As stated earlier, the Lender wants to see 3 months of the Non-Warrantable and/or Condo-Hotel mortgage payment in cash at least for the subject property
  • For those borrowers with questionable credit scores, Lenders might prefer to see the 3-month cash reserve requirement for both properties

The balance can be in stocks, bonds, IRA, retirement funds, and other liquid securities like annuities.

 Are Condotel Mortgage Loans Reserves Escrowed?

 Are Condotel Mortgage Loans Reserves Escrowed?

Reserves are not escrowed. It is not enforced by lenders after the home closing. Buyers of non-warrantable condos or condotel condominiums can contact Gustan Cho Associates at 262-716-8151 or text us for faster response. We are available 7 days a week, evenings, weekends, and holidays via phone or email us at gcho@gustancho.com.

UPDATE On Non-Warrantable And Condotel Mortgage Loans Reserves Requirements

This blog article post on Condotel Mortgage Loans has been updated on December 2nd, 2018

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