Understanding the Difference Between Warrantable and Non-warrantable Condos in Lynn

The value of properties in Lynn is slowly increasing, making it a great time for those who cannot afford to–or do not want to–live in Boston to consider buying a condo in the nearby city. Indeed, as reported by Itemlive.com, the city of Lynn’s assessing department reported that condominium values increased by 8.3 percent in 2017, and that residential properties in general are appreciating at a very high rate.

But before you decide to put an offer in a condo in Lynn, it is important that you understand the concept of condo warrantability, and how warrantability can affect your loan terms, as well as your ability to secure a loan in the first place.

Warrantability: What’s That?

When a condo is warrantable, it means that Fannie Mae and Freddie Mac will allow a mortgage; if the condo is non-warrantable, Fannie Mae and Freddie Mac won’t back the loan. Since the majority of lenders in the country rely on Fannie Mae and Freddie Mac-backed loans, getting a mortgage from a traditional source (like your bank) could prove more difficult if the property you want to buy isn’t warrantable. The two mortgage loan companies consider a condo to be warrantable when:

  • There is not a single owner, developer included, who owns 10 percent or more of the project’s units;
  • More than half of the units are occupied;
  • No more than 15 percent of owners are delinquent on their condo association dues;
  • There are not any pending lawsuits against the condo association; and
  • If there is commercial space included in the project, it accounts for less than 25 percent of total square footage.

What Happens When a Condo Isn’t Warrantable?

A condo not being warrantable isn’t always a bad thing. For example, a brand new development might not yet be warrantable because enough units haven’t been sold at the time you’re looking to buy, but it is likely that the project will become warrantable in the future. That being said, US News & World Report warns against the financial risks of buying a non-warrantable condo, explaining that:

  • You may learn that you won’t be able to secure a conventional loan just a few days before your closing date, resulting in pushing the date back, and potential financial losses (like the costs of an appraisal). This is because traditional lenders often wait until the last minute to review condo association questionnaires that determine warrantability.
  • In pursuing non-conventional lending (which may be necessary if you cannot secure a conventional loan due to warrantability issues), you may also be subjecting yourself to higher loan rates or less-than-ideal loan terms, like having to put down a larger down payment or agreeing to an adjustable rate mortgage (ARM).
  • Of course, you should also consider whether or not buying a non-warrantable condo is a good investment. Sometimes, warrantability isn’t something to be concerned about, but in other cases–such as those involving litigation or a large percentage of fee-delinquent condo owners–it is.

Meet with a Lynn Condo Real Estate Attorney Today

If you’re thinking about buying a condo in Lynn, you should consult with an experienced Lynn real estate attorney who has experience working with warrantable and non-warrantable condos first. An attorney can help you to understand all issues you may encounter, as well as how to navigate a problem should one arise.

Deborah Gold-Alexander, Attorney at Law, has over 30 years’ experience, and is ready to meet with you. Call her today at 781-289-4235, or fill out the contact form on her website.