In residential real estate, some condominium homeowner associations (HOA’s) can be labeled as “non-warrantable.” This means the association does not meet the guidelines required for conventional financing.
While this may sound complicated, the concept is simple: the property and association carry a higher risk from a lending viewpoint. Here are some common issues that can cause a property to be considered non-warrantable:
First, master insurance coverage can be a problem. If the complex does not have sufficient master insurance coverage, mortgage lenders may not be able to place conventional financing into the property.
Second, the homeowners’ association (HOA) financial health matters. A deficient budget or lack of reserve funds signals poor financial health in how the project is managed and raises concerns about future repairs.
Third, the condition of the property plays a role. Deferred maintenance or major repairs that have not been completed can make a project ineligible. Fourth, ongoing legal disputes involving the HOA can create uncertainty.
Finally, special assessments—fees charged to owners in addition to regular dues to cover unexpected or major expenses—can indicate underlying financial or structural issues. These factors have become more common. In some markets, around 25% of condo and townhome complexes may not qualify for traditional mortgage loans due to failure on the HOA’s part to meet the necessary requirements.
One challenge is that these issues are not always obvious up front. Oftentimes, these issues are discovered only after condo documents are reviewed during underwriting, which can take one to two weeks after going under contract.
Non-warrantable does not mean a mortgage loan is impossible. Alternative financing options, such as portfolio loans, may still be available. These loans often come with different terms, like higher down payments or slightly higher rates, but they allow transactions to move forward.
Another path is improvement over time. Strengthening HOA finances, resolving litigation, and completing repairs can eventually make a property eligible for standard financing.
For more information, call us at (760) 930-0569 to discuss how this can be navigated successfully when searching for a property that may fall into this category.
