As a first-time homebuyer of a condo, you will want to be aware of potential risks to such a transaction. “Non-warrantable” means that a property doesn't meet all of Fannie Mae or Freddie Mac's qualified lending requirements. If something major goes wrong in another part of the condo community, even if it isn’t directly affecting the unit under contract, the entire responsibility is shared by all owners in the community. Lenders don’t like this. It can cause potential problems such as litigation or special assessment.
Before buying a non-warrantable condo in California, new homebuyers should be aware of the following:
Financing options: Non-warrantable condos may not be eligible for conventional financing, so it is important to research financing options, including non-traditional lenders, private loans, or cash purchases. Get preapproved with a trusted lender before making an offer. I can’t emphasize this enough.
Homeowner Association (HOA) issues: Non-warrantable condos may have HOA issues that can impact the purchase process, including high delinquency rates, litigation, or insufficient reserves. Buyers should carefully review HOA documents, including financial statements and meeting minutes. Look into the budget reserve - is it declining? That might be a red flag.
Insurance requirements: Some lenders may require specialized insurance coverage for non-warrantable condos, which can be more expensive than traditional insurance policies.
Resale potential: Non-warrantable condos may have limited resale potential, as some lenders and buyers may be hesitant to purchase a property with a high risk profile.
Property condition: Buyers should also carefully inspect the property for any maintenance or structural issues, as non-warrantable condos may not have the same level of protection and oversight as warrantable properties. It is important for buyers and their realtors to review in detail homeowners association documents.
Overall, buying a non-warrantable condo in California can come with additional risks and complications, so buyers should do their due diligence and consult with experienced real estate professionals to fully understand the potential challenges and costs involved.