Qualifying For Condotel And Non-Warrantable Condo Loans
This BLOG On Qualifying For Condotel And Non-Warrantable Condo Loans Was Written By Dora Ali of Gustan Cho Associates Mortgage Group
How To Get A Mortgage For A Condotel Or Non-Warrantable Condo?
Qualifying For Condotel And Non-Warrantable Condo Loans is now possible.
- Condotels are condominium units in a hotel complex
- Non-Warrantable condominiums are regular condominiums in a condo complex
- However, the condo complex consists of 51% or more investor occupied units
To be classified as a warrantable condo, the complex needs to be at least 51% or more owner occupant.
- As mortgage lenders seek to reduce their respective lending risk, certain condominiums around the country are generally being specifically excluded from approval.
- Approval problems have hurt purchase and refinances activity in such cities as New York City, Chicago, Boston, and everywhere else that a “non warrantable” condominium exists.
What Are Non-Warrantable Condos?
What is a non-Warrantable Condo?
- A condominium that does not meet the minimum eligibility standards as set by Fannie Mae and/or Freddie Mac
Fannie Mae and/or Freddie Mac will only purchase warrantable condominium conventional loans.
- When condo buildings fail Fannie and Freddie’s minimum standards, it’s often for one or more of the following reasons:
- The project is more than 10% owned by one entity
- 50% or more of the project units are rentals
- More than 20% of the building square footage is “commercial”
- The project is filed with the SEC and is sold as an investment opportunity
- The project is “new” and grants concessions and/or abatement not listed on the settlement statement
There are other non-warrantable traits, too, including too many “unsold units”, certain types of pending litigation, and length of time that the condo board has been in control of the building’s owners. The list is quite long, actually.
- Another non-warrantable trait is homeowner association dues being paid less than 85% current
- This means that if more than 15% of a condo building’s owners are delinquent to the association, conforming mortgages are unavailable to everyone that lives there, and everyone attempting to buy there, too
- Condotel Financing In Florida And California are very popular
What Are Condotels?
Condotel is a portmanteau of the words “condominium” and “hotel”. It describes buildings used as both a condo and a hotel, with owners keeping the rights to rent their units while they’re not actually using them.
- Condotels are most common in coastal resort type areas like California and Florida
- Condotel Financing In Florida and California is back
- Condo hotel unit buyers and owners have been experiencing extreme difficulty in trying to obtain Condotel Financing in Florida and California as well as the rest of the nation for both purchase and refinance mortgages
- Many owners currently have mortgages that range from 6% or higher
- This is because they got their mortgages prior to the real estate crash of 2008 when mortgage rates were much higher than it is today
In Mortgages, It’s About The Building AND The Buyer
The mere presence of any of these characteristics instantly characterizes the building as “non-warrantable”, preventing building owners from securing conventional mortgage financing on today’s mortgage guidelines.
- This fact can surprise homeowners who may otherwise be well-qualified
- For home buyers and owners facing a non-warrantable condo situation, good credit, good income, and good down payment suddenly becomes irrelevant
- It’s a new truth in lending
Who Does Condotel Financing In Florida And California?
Most lenders do not want to finance condo hotel units.
- Whether it is a purchase or refinance mortgage, the reason lenders do not want to finance condotel units and non-warrantable condominiums is because they need to hold it in-house and portfolio the loan
- For unit owners needing to refinance their current loan, they should see if their current lender will refinance their current loan
- Most of the owners come back to me and tell me that their bank is not willing to refinance their existing mortgage loan
- Most owners have their condo hotel mortgages with big banks like Chase and Wells Fargo
- Banks like Chase WILL NOT refinance a condo hotel unit mortgage
- It does not matter whether the owner is a preferred client, or whether the LTV is below 50% and the condo unit is cash-flowing
Condo Hotel Financing Process
Borrower needs to complete a condominium questionnaire provided and completed by the condo hotel homeowners association manager:
- The condominium questionnaire is then reviewed by an underwriter to see whether the condo hotel complex does not have any major pending litigation and complies and if it does, the unit is approved and the mortgage process can continue
- If the condotel qualifies, we then take your preliminary application (mortgage applicants can APPLY NOW ) and the loan gets processed and gets underwritten
Part of the underwriting and approval process includes the file being reviewed by the credit committee.
- In order for the file to go to the credit committee, the underwriter signed off on the loan and the credit committee will just needs to review it
- Once the credit committee agrees with the underwriter’s recommendation, the loan file gets back to the underwriter and a conditional approval is issued
- The conditions need to be worked and once the borrower provides all the conditions, the file is reviewed by the mortgage processor and submitted for a clear to close
Qualifying For Condotel And Non-Warrantable Condo Loans On Purchases
On condotel purchase loans here are the requirements:
- 25% down payment on first and second homes
- 40% down payment if buyers have more than 2 properties
- One year reserves of principal and interest for each property borrower owns
- Reserves does not have to be in form of cash but needs to be liquid investments such as securities accounts, pension accounts, and other documented asset accounts
- Condotel mortgages and non-warrantable condominium loans are adjustable rate mortgages amortized over 30 years
- ARMS available are 3/1 ARM, 5/1 ARM, and 7/1 ARM
- If any of you are interested in purchasing or refinancing a condo hotel or non-warrantable condominium please do not hesitate to contact Gustan Cho Associates Mortgage Group
About The Author Of Qualifying For Condotel And Non-Warrantable Condo Loans
Dora Ali is the author of Qualifying For Condotel And Non-Warrantable Condo Loans. Dora is a contributing editor for Gustan Cho Associates Mortgage & Real Estate Information Resource Center. Dora Ali is an expert in real estate, title, investments, and lending. Dora’s passion is educating the public and fellow loan officers about his knowledge in real estate investments and guiding first time home buyers on qualifying for home loans with no stress. Stay tuned to Dora’s upcoming blogs.