Once a condo development has been determined to be non-warrantable, the mortgage loan options begin to immediately diminish.
Many of the nation’s biggest banks like Bank of America, Wells Fargo, Chase, and Citibank will not provide mortgage financing to a non-warrantable condo, regardless of the financial strength of the borrower, or length of banking relationship with the customer. The mid-sized mortgage banks such as Quicken Home Loans, USAA, Navy Federal etc. will also not facilitate the funding of mortgage transaction on a non-warrantable condo. The vast majority of mortgage banks will follow the mortgage loan guidelines set forth by the government sponsored institutions known as Fannie Mae and Freddie Mac and will not make loans outside of the thresholds related to condominiums.
To Finance a Non-Warrantable Condo, you will need access to a Portfolio Lender
The term, “Portfolio Lender” is a reference to a bank, credit union, or other financial institution that funds home loans with the intention of servicing the loans, rather than selling the loans. The business of mortgage lending for the big and mid-sized mortgage banks is not only the procurement of mortgage loans. It is also the bundling and selling of these loans on the secondary mortgage market for an additional profit. A great deal of thought goes into this process at the bigger banks. If they cannot sell the loan, then there is a good chance that they will not make the loan in the first place. In contrast, a portfolio lender will have the additional flexibility to make a loan decision based on the merits or qualifications of the borrower, not simply if the condo complex is considered warrantable by Fannie Mae or Freddie Mac.
In most situations, these portfolio lenders depend on the services of mortgage brokers to secure the loans that they seek to fund and also service. A mortgage broker acts as an intermediary between the client and the bank that will fund the mortgage transaction. The mortgage broker will bring the transaction to the portfolio lender who will then underwrite, fund and service the loan. The mortgage broker is compensated either directly from the portfolio lender based on a percentage of the loan amount, or by charging the borrower an origination fee.
In most situations where a buyer or home owner is in need of a mortgage loan on a non-warrantable, the best place to start is with a mortgage broker that specializes in non-warrantable condos.
Here are some questions that you are going to want to ask your mortgage broker up-front?
What is the name of the portfolio lender that will be funding your loan?
Before you get too far along in the process, it is important to know who the actual lender will be. This will give you some time to research their level of involvement and experience in funding non-warrantable condos.
What are the fees involved with the transaction?
All mortgage loan originators are required by federal law to disclose the costs of any transaction upfront and during the loan process. Save yourself some time and confirm the following as early as possible:
- Transaction Fees – These will typically range between $1,200 to $2,000.
- Points – There are some brokers that will charge origination points to facilitate the transaction, so it’s best to confirm these amounts upfront and before loan disclosures are provided to you.
When is the last time that the broker closed a transaction with this lender?
Non-warrantable condo loans are unique so you’ll want to make sure that the mortgage broker has experience with these types of loans, and has previously worked with the lender and confirm they are actively funding them on a consistent basis.
How long will the transaction take from submission to funding?
In some situations, portfolio lenders will require more than thirty days to provide funding on a transaction. While this is not an issue for most refinances, an escrow period greater than thirty days can have some contractual implications.
Non-Warrantable Condo Lenders
The most common element of a condo that makes it non-warrantable has been construction defect litigation. The portfolio lender that has lead the way in Condo litigation over the past four years has been Coast 2 Coast Funding Group. The company is based out of Lake Forest, California, and offers borrowers the ability to contact them directly or to go through a broker for access to their non-warrantable condo loan programs. Coast 2 Coast will go up to a maximum loan-to-value(LTV) ratio of 80% for the purchase or refinance of a condo, and will require a minimum FICO credit score of 660. This is the premier product and differentiation of Coast 2 Coast. They represent one of the few lending options in the non-warrantable condo space that will allow for a maximum LTV of 80%. They will allow a maximum LTV of 75% on a second home and a maximum LTV of 65% on an investment property.
Alternative Lenders to Coast 2 Coast Funding Group
Other portfolio lenders have started to recognize the opportunity to secure very well qualified borrowers who are looking to finance an unwarrantable condo by positioning themselves as an alternative to Coast 2 Coast.
These lenders will require a minimum down payment of 30% (maximum LTV of 70%) but will also consider a down payment of 25% (maximum LTV of 75%) for a well-qualified borrower that has a minimum credit score of 720 plus a minimum of 12 months of payment reserves. In contrast to Coast 2 Coast, these lenders will provide significantly lower interest rates without the expense of any origination points related to the transaction. These lenders will also allow for the purchase or refinance of an investment property to a maximum LTV of 70% and will also provide financing on a condo where a single entity owns more than 10% of the units. These lenders will provide financing in less than 30 days and are providing borrowers with a very attractive alternative to Coast 2 Coast Funding.
For many people faced with the challenges of purchasing or refinancing a condo in litigation, the process of finding the right lending team to work with can be confusing. It’s important to gather as much information as possible regarding the portfolio lender that will eventually fund your loan transaction as well as the mortgage broker facilitating the transaction. In some situations, Coast 2 Coast Funding Group may be the best option to secure financing, but there are other portfolio lenders that are providing lower interest rates for loan scenarios on lower LTV transactions, so it’s to your advantage to explore all options.