What Is a Warrantable Condo—and Why It Matters for Real Estate Investors

What Makes a Condo Warrantable? A Guide for Real Estate Investors

When evaluating condo properties as part of your investment strategy, one of the most important questions you should be asking is, “does this project qualify as a warrantable condo?” This simple yet important term (property warrantability) can dramatically affect your financing options, risk exposure, and timeline to close. This is because for a loan to be eligible to be serviced by Fannie Mae or Freddie Mac, the condo must be warrantable. 

Investors looking to move forward on a new condo deal should understand what it means for a condo to be warrantable, why it matters, and how to navigate financing for both warrantable and non-warrantable condos.

In this article, we break that down—equipping investors with the knowledge needed to navigate condo warrantability. Understanding this term is especially useful for investors working with nuanced deal structures, where understanding the intricacies of available financing options is essential for success. 

What Does "Warrantable" Mean?

A warrantable condo meets specific guidelines set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that support the majority of the U.S. mortgage market. These guidelines are designed to mitigate risk for lenders and ensure that condo projects are financially sound, structurally complete, and well-managed.

If a condo is warrantable, it’s eligible for conventional financing backed by Fannie Mae or Freddie Mac. If not, it’s considered non-warrantable. Under non-warrantable conditions, lenders will either decline the deal or require a specialized loan product, often with higher rates and stricter terms.

Understanding the difference is crucial. Below is a comprehensive breakdown of warrantability; what is required, how to meet it and when to change strategic approach based on your property’s circumstance. The breakdown is then followed by actionable insights for investors looking to finance either type.

1. Owner-Occupancy Requirements

To ensure stability within a condo community, at least 50% of units must be owner-occupied or have the owner's primary residence listed as the mailing address. This discourages high investor concentration, which could drive turnover, volatility, or short-term rental activity.

2. HOA Financial Health

Condo warrantability hinges on the financial condition of the homeowners association (HOA). The HOA must:

1. Reserve at least 10% of its annual budget for future repairs and capital improvements.
   
   1. This ensures the building won’t face sudden special assessments or deferred maintenance.
2. Have no more than 15% of units over 30 days delinquent on HOA dues.
   
   1. High delinquency rates may indicate poor community stability or mismanagement.
3. Maintain adequate insurance coverage:
   
   1. A master building insurance policy
   2. General liability coverage
   3. Fidelity bond (if the HOA controls significant funds)

Lenders analyze HOA budgets, meeting minutes, and insurance certificates closely. These requirements and inspections become especially prevalent when dealing with an older or mixed-use building. 

3. Ownership Concentration

To avoid risk concentration, no single individual, entity, or investor can own more than 10% of the units in the project. This ensures that no party has disproportionate control over the HOA or market pricing within the community.

This rule is especially relevant for bulk condo buyers or investors looking to acquire multiple units in a building. If your portfolio strategy relies on scale, you may be forced to structure across multiple properties or seek out non-warrantable financing options.

4. Commercial Use Restrictions

Fannie Mae and Freddie Mac impose limits on commercial space within residential projects. Commercial or non-residential space must account for no more than 35% of the total square footage of the project.

If the ground floor includes restaurants, offices, or retail units, the building may still qualify—so long as the majority of square footage is residential.

Projects with large co-working spaces, gyms, or ground-level leasing offices might push past the threshold and become non-warrantable.

5. Construction and Sales Status

Condo projects are evaluated based on how far along they are in development:

1. Established projects: Must have at least 90% of units sold (not just reserved or under contract).
   
   
2. New or recently converted projects: Require at least 70% of units pre-sold to warrant financing.

This requirement is in place to reduce the risk associated with under-occupied buildings and help ensure long-term viability of the HOA.

For investors eyeing newly converted or under-construction properties, this metric can make or break a deal’s ability to close with conventional financing.

6. Legal and Structural Requirements

Warrantable condos must be free from ongoing legal or structural red flags. That means:

1. No active litigation involving the HOA or developer, particularly related to structural defects or construction quality.
2. The project must be fully completed, including all units and shared amenities or common areas.
3. The project cannot be affiliated with a continuing care facility or other healthcare-related residences.

Legal disputes can delay financing or kill deals altogether. Be especially cautious of large buildings with history of class-action lawsuits or renovation-related claims.

7. Property Type and Usage Restrictions

To be warrantable, a condo project must meet the following property and usage standards:

• No HUD-code manufactured homes. Condo projects cannot be primarily made up of manufactured homes built under HUD standards.
  
  
• Modular homes may be acceptable. Factory-built modular units that comply with local building codes can sometimes qualify, but they must meet the same standards as site-built homes.
  
  
• No hotel or “condotel”-style operations. Projects that operate like hotels — with extensive daily or weekly rentals, front desk check-in, or resort-style services — are not eligible.
  
  
• Limited short-term rentals may be permitted. Occasional short-term rentals by individual unit owners do not automatically make a project non-warrantable, as long as the project functions primarily as residential housing rather than transient lodging.

8. The Condo Questionnaire

Even if a condo project seems to meet all the requirements above, a lender won’t take your word for it. They rely on a condo questionnaire, a standardized form that the HOA or property manager must complete.

This questionnaire verifies key items such as:

• Owner-occupancy ratios (how many units are primary residences vs. rentals)
  
  
• Delinquency rates (are more than 15% of owners behind on dues?)
  
  
• Insurance coverage (master policy, liability, fidelity bond)
  
  
• Reserve funding (at least 10% of the budget set aside for repairs)
  
  
• Legal issues (pending litigation against the HOA or developer)
  
  
• Property type & usage (confirming it’s not a condotel, hotel-style project, or full of manufactured homes)

Lenders use this form as their checklist to determine whether the project is warrantable. If the HOA can’t or won’t complete it—or if the answers reveal red flags—the deal may stall or require non-warrantable financing.

Why Warrantability Matters for Investors

Warrantability doesn’t just determine which lender you can work with but it directly affects:

• Financing terms: Conventional loans offer lower rates, longer amortization, and lower down payments than non-warrantable alternatives.
• Exit strategy: If you plan to flip or resell the unit, a non-warrantable designation may limit your buyer pool.

Conclusion

Knowing whether a condo is warrantable isn’t just a box to check but tells you what strategy to adopt. Understanding these guidelines can help you negotiate better loan terms, evaluate risk more accurately, and move faster when an opportunity arises. 

Whether you’re funding your next flip, building out a portfolio, or scaling into commercial-residential hybrids, Certain Lending is here to help. We make it easy; send us your property and we’ll tell you if it’s warrantable and give you financing options either way.

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