Condotel and Non-Warrantable Condo Loans
In this blog, we will cover and discuss condotel and non-warrantable condo loans. We will also be discussing will the process of obtaining a mortgage loan for a condotel property. Buyers looking for a condotel property and non-warrantable condos and needing to qualify for condotel and non-warrantable condo loans will typically run into problems when trying to obtain non-traditional financing. Condotels and non-warrantable condos are nonconforming loans. Fannie Mae and Freddie Mac will not purchase condotel and non-warrantable condo loans since they do not meet their guidelines.
Learn more about Condotel and Non-Warrantable Condo Loans with us. Click here!
How Can I Qualify For Condotel and Non-Warrantable Condo Loans?
Government and conventional mortgage lenders do not originate condotel and non-warrantable condo loans. Only non-QM mortgage lenders can originate non-conforming condotel and non-warrantable condo loans. It is common for applicants to be told by lenders they can assist them in their purchase, only to return on their commitment during the underwriting process.
Lenders will often inform their clients that they can’t get the client approved after they are long into the process. The reason being is the property is a Condotel. In the following paragraphs, we will be covering and discussing qualifying for condotel and non-warrantable condo loans.
Condotel and Non-Warrantable Condo Loan Options For Homebuyers
In this section, we will cover the various options for obtaining purchase, rate and term refinance, and cash-out condotel and non-warrantable condo loans. First and foremost, when preparing to make one of the most significant purchases in a lifetime, it is essential to do your research. It is imperative that you choose the right lender for the job. You need to speak with the person and get that “comfortable” feeling, the “warm and fuzzy” feeling that puts your mind at ease.
Does Fannie Mae and Freddie Mac Do Condotel and Non-Warrantable Condo Loans?
You need to know you have chosen the right lender. Far too often, people tend to select the first person they talk to, become irritated with the level of service they are receiving during the process, and end up backing out of the transaction. If you are in the market for a Condo Hotel and Non-Warrantable Condos, make sure the lender you choose has multiple products.
Why Would a Condo Not Be Fannie Mae and Freddie Mac Approved?
The non-Non-QM mortgage lender or non-QM mortgage broker should have access to multiple wholesale investors that will accept the Condotel and non-warrantable condo loans. Condotel and Non-Warrantable loan options should not only be acceptable, but they tend to have short closing time frames.
Is It Hard To Get a Mortgage on a Condominium?
At Gustan Cho Associates, we pride ourselves on assuring our customers of our commitment and ability to provide them with the necessary product to match the property of their choice. Including options for our clients will allow them to get cash out of a Condo when there is equity in the property, typically offering favorable terms.
Quality Mortgage Versus Non-QM Condotel and Non-Warrantable Condo Loans
When Obtaining A Loan To Purchase A Condotel Or A Non-Warrantable Condo, They Will Differ From A Standard QM Loan. When you receive a QM Loan, the lender who originates the loan does not usually hold onto the loan. In most cases, the loan is sold on the secondary market to investors. This process will allow the lender to free up capital to use on other loans they are writing.
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Who Finances Condotel and Non-Warrantable Condo Loans?
Regarding Condotel or Non-Warrantable Condos, the lender will generally hold onto these loans. This process is known as a Non-QM or Portfolio Loan. Generally speaking, these loans are hard to obtain. It is rare for banks and residential lenders to have the ability to offer this type of financing. Unlike Fannie Mae and Freddie Mac, Condotel, and Non-Warrantable Condo loans, underwriters use a practical approach to determine the buyer’s ability to repay.
What Are Condotels?
Think Condominium and Hotel; Condotels are just as they sound, a combination of the two! Condotels are legal Condominiums that are individually owned and operated as a Hotel. They will have a registration desk, full cleaning service, and other popular amenities that Hotels offer. Below, you will find guidelines for financing a Condotel.
- Whether you are purchasing a Condotel as a primary or vacation home, it is required that you put a minimum of twenty-five percent down, and the loan to value cannot exceed three million dollars.
- Investment property condotel units require a 40% down payment
- If you are looking to refinance your current Condotel, the cash-out option is up to seventy-five percent loan to value.
- In certain situations, despite the income of the Condotel claimed on Schedule E, the property may qualify as a secondary residence.
- The property can be rented either daily, nightly, or weekly.
- The most common demographic to purchase Condotels are investors.
- Properties are not eligible for Home Owners Association fees.
Investor groups and individual investors are allowed to own more than ten percent of the unit, and they can purchase the first unit in the complex if it is newly constructed.
What Are Non-Warrantable Condos?
Unlike Condotels, Non-Warrantable Condos do not resemble a hotel atmosphere. There is no registration desk, nor is complete service cleaning provided. There are some similarities to Condotels. As previously mentioned, the primary demographic to obtain financing for Non- Warrantable Condos are investors.
How Hard Is It To Get a Newly Built Non-Warrantable Condo Complex Financed?
Investors can be the first financed condo in a newly constructed complex. Condotels and Non-Warrantable Condos are similar by requiring a minimum of fifteen percent down payment and eligible loan values up to three million dollars. They also share the exact requirements for cash-out refinancing with a limit of seventy percent loan to value.
Borrower Qualifications For Condotel and Non-Warrantable Condo Loans
- Borrowers are required to have a minimum credit score of 680 FICO
- If the borrower purchases the property as either an investment property or for a vacation home, the borrower’s total debt-to-income ratio can not exceed fifty percent.
- You can qualify for financing by using state income for business purposes.
- Checking Accounts, Savings Accounts, IRA Accounts, 401k plans, and retirement accounts all count as income.
Condotel and Non-Warrantable Condo Loans Property Requirements
The condominium complex needs to qualify per each lender’s own individual lending requirements. In general, non-QM condotel and non-warrantable condominium mortgage lenders will want to only finance a condo unit that is not under any sort of litigation by a person, entity, or government agency. No major pending violations by the local, county, or state department of buildings.
The condominium complex needs to be in good condition with no major repairs being required. The condo homeowners association needs to have sufficient reserves and be current on all. The unit must be equipped with a full kitchen, separate bathroom, and bedroom. The unit must be classified as 100% residential. The amount financed has to be a minimum of one hundred thousand dollars. The complex the unit is in must be appraised and determined that the complex is at least fifty percent commercial.
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Frequently Asked Questions (FAQs)
- What are Condotels?
Condotel, short for condominium hotel, is a type of property that operates as a hotel but consists of individually owned units. Owners can use their units as vacation homes and have the option to rent them out to guests through a rental program when they’re not in use. - What is a Non-Warrantable Condo?
A Non-Warrantable Condo is a condominium unit that does not meet the eligibility requirements set by Fannie Mae or Freddie Mac for conventional mortgage loans. These condos may have high investor ownership, pending litigation, or inadequate financial reserves. - Can I get a mortgage for a Condotel?
Yes, it’s possible to obtain a mortgage for a Condotel. However, Condotel financing typically requires specialized loan products and impose more stringent eligibility criteria compared to conventional mortgages. - What are the requirements for Condotel financing?
Condotel financing may require a higher down payment, stricter credit score requirements, and specific reserve funds. Lenders may also assess the Condotel’s financial stability, rental management program, and insurance coverage. - Are Non-Warrantable Condo Loans available?
Yes, there are financing options available for non-warrantable condos. These loans are typically provided by niche lenders who specialize in non-conventional financing and may offer adjustable-rate mortgages (ARMs) or portfolio loans. - What are the eligibility criteria for Non-Warrantable Condo Loans?
Eligibility criteria for Non-Warrantable Condo Loans vary depending on the lender. Still, they may include factors such as the percentage of investor-owned units, pending litigation, commercial space within the development, and homeowner association (HOA) financials. - Can I use government-backed loans for Condotels or Non-Warrantable Condos?
Generally, government-backed loans such as FHA, VA, or USDA loans are not available for condominiums or non-warrantable condos. Borrowers typically need to seek financing from private lenders or specialized mortgage companies. - Are interest rates higher for Condotel and Non-Warrantable Condo Loans?
Condotel and Non-Warrantable Condo Loans’ interest rates may be higher than traditional mortgages due to increased risk factors associated with these property types. Borrowers are advised to explore various lenders and compare interest rates. - Can I rent out my Condotel or Non-Warrantable Condo?
Yes, owners of condominiums and non-warrantable condos can typically rent out their units to guests when not occupying them. However, there may be restrictions imposed by the homeowners’ association or rental management program. - Should I work with a specialized lender for Condotel or Non-Warrantable Condo financing?
Working with a lender experienced in Condotel and Non-Warrantable Condo financing can be beneficial, as they can guide loan options, eligibility requirements, and potential challenges associated with these unique property types.
Gustan Cho Associates can help you with Condotel and Non-Warrantable Condo loans. Call us at 800-900-8569 or text us for a faster response. You can also email us at alex@gustancho.com. Our expert Loan Officers are available even during weekends and holidays!
