An investor finds a well-priced condo with strong rental numbers, applies for financing, and gets stopped cold by a phrase they may never have heard before: the project is non-warrantable. The unit is fine. The problem is the building. Non-warrantable condos can still be financed with a DSCR loan, but investors should walk in with clear expectations about how it works and what it costs.
Warrantable vs Non-Warrantable: The Plain Explanation
Warrantable simply means a condo project meets the standard guidelines that conventional, government-backed financing relies on. Non-warrantable means it does not. The label is about the project, not your unit and not you as a borrower.
A condo project commonly becomes non-warrantable for reasons like these:
- Too high a share of units owned by investors rather than owner-occupants.
- A single owner or entity controlling too many units in the building.
- The association involved in litigation.
- Inadequate reserve funding or budget problems.
- Too much commercial space in the project.
- A high rate of owners delinquent on their association dues.
- The project still being in developer control or in early sell-out.
Why Conventional Financing Stops, but DSCR Does Not Have To
Conventional loans follow strict warrantability rules, so a non-warrantable project shuts that door. DSCR lending is different. Many DSCR programs accept non-warrantable condos, because DSCR is a non-QM product not bound by the same agency rules. The catch is that not all DSCR programs accept them, and the ones that do underwrite the project carefully.
What a DSCR Lender Reviews on a Non-Warrantable Condo
Expect the lender to look closely at the project itself. They will want a condo questionnaire, the association budget, the reserve study, and information on litigation, delinquency rates, and the owner-occupancy mix. A non-warrantable project that is non-warrantable for a benign reason, such as a high investor ratio in an otherwise healthy, well-funded building, is far more financeable than one that is non-warrantable because of serious litigation or financial distress.
In other words, the reason a project is non-warrantable matters as much as the label itself.
What to Expect on Terms
Set realistic expectations. A non-warrantable condo DSCR loan typically comes with a lower loan-to-value cap than a warrantable condo, a rate that runs somewhat higher, and heavier reserve requirements. These are not penalties so much as the lender pricing for a narrower resale market and a more complex project. For an investor whose numbers still work after accounting for those terms, a non-warrantable condo can be a strong buy precisely because warrantability scares off other buyers.
Questions to Ask Before You Commit
- Why is this project non-warrantable? A benign reason is very different from litigation or insolvency.
- What is the association’s reserve and budget situation?
- What is the owner-occupancy versus investor ratio?
- Is any single entity controlling a large block of units?
- Are there any pending special assessments?
Turn a Non-Warrantable Decline Into an Approval
A non-warrantable condo declined by a conventional lender is often perfectly financeable with the right DSCR program. Select Home Loans can route a non-warrantable condo file to the investor partners that accept these projects and tell you what terms to expect once the project details are in. Contact Nick at Select Home Loans, NMLS #2384002. Call (888) 550-3296 or visit https://www.selecthomeloans.com/dscr-loans/ to get a non-warrantable condo reviewed.
Disclaimer
Disclaimer: This article is for general educational purposes and does not constitute lending, legal, tax, or financial advice. Loan programs, guidelines, rates, and property eligibility rules change frequently and vary by lender and by individual borrower scenario. Confirm all current terms directly with a licensed mortgage professional before making a decision. Select Home Loans is a non-QM mortgage broker. NMLS #2384002.
