Check Your Warranty

If your buyers are interested in something quaint around Grant Park, like a nice condominium at Aqua or Metropolitan Tower, they’re not alone.  Chicago-area condos, while still in recovery mode might just be ready for uptick in sales.  And as you and your buyer shop for that perfect condo, remember; condo financing has a few rules of its own.  The biggest question for condo buyers might be: is it warrantable or non-warrantable?

The condominium, that is.  Lenders that provide condominium financing typically follow guidelines established secondary giants Fannie Mae and Freddie Mac.  If a condo project is deemed “warrantable” then the buyer has some flexibility in loan choice.  If the condo is not so deemed, or unwarrantable, then both sellers and buyers need to be aware of what this special status means.

A warrantable condo simply means that a loan can be sold to Fannie or Freddie.  Lenders like that.  When they sell a loan that means they can go out and fund another one.  A warrantable condo can be financed with most any conventional mortgage program.  A warrantable condo has:

  • At least 70 percent of the units are owner-occupied or second homes
  • Project phase is completed
  • All common areas are complete
  • Ownership has been transferred from the developer to the HOA
  • No entity owns more than 10 percent of the project

There are other traits of the project but these are the biggies.  If a condo is not warrantable, then the buyer may have to put more than 20 percent down or be denied a loan approval altogether.

Knowing the warrantability of a condo is important to know at the outset when considering placing an offer.  Most times the seller of a condo is not concerned with the condo’s status when accepting an offer.  If the buyer can’t get conventional financing and the only choice is specialty, non-warrantable loans, that’s not the seller’s concern; either the buyer closes on the condo or does not.

To find out if a condominium project is warrantable, contact the HOA or management company.  They should be able to tell you upfront.  The status of a condo should be known at the very beginning, not toward the end when it just might be too late.  So when you get a preapproval, make sure the building is approved for the loan the buyer needs!


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