Condo warrantability without the acronyms

You can have a great score, two years of clean income, a big down payment and an accepted offer, and still be declined — because of who owns unit 3C, how much of the ground floor is a coffee shop, and what the association’s budget says about its reserve fund.

This surprises people, understandably. When you buy a condominium, the building has to qualify as well as you do.

What "warrantable" means

Conventional loans are written to guidelines set by the two large secondary-market agencies. A condominium project that meets those guidelines is called warrantable, which simply means a lender can sell the loan on afterwards. A project that does not is called non-warrantable, which does not mean bad — it means a lender who wants to keep the loan on their own books has to want it.

The things that usually cause the problem

• Owner-occupancy ratio. Too many units rented out and the project falls outside guidelines. In an older Providence building with a long history of small landlords, this is the most common single cause.
• Single-entity ownership. One person or company owning too large a share of the units. In a small association, owning three of eight is already a large share.
• Commercial floor area. Mill and school conversions frequently have shops, studios or offices on the ground floor. Past a threshold, the project is treated as mixed-use.
• Reserves. Guidelines generally want the annual budget to allocate a meaningful percentage to reserves. An association that has kept dues artificially low for a decade fails here, and it is also a genuine warning about your own future costs.
• Litigation. Any active suit involving the association, particularly about construction or safety, will stop a conventional loan.
• Delinquency. Too many owners behind on dues.
• Insurance. The master policy has to actually cover the building for what it would cost to rebuild.

Not one of these is about you. All of them can decline you.

How it gets found out

Through a questionnaire the association or its management company fills in. The critical point is timing: the questionnaire can be requested in week one, before an appraisal has been ordered and before anybody has spent money. Some management companies charge a fee and take a fortnight. That is still week one rather than week five.

I ask for it as early as the association will produce it, along with the budget, the financials, the master insurance certificate and any special assessment notices from the last two years. The last of those is as much for you as for the lender.

If it comes back non-warrantable

Then it is a different loan, not the end of one. Portfolio lenders — often regional banks and credit unions — write these deliberately and keep them. Expect a larger down payment and a higher rate, and expect the underwriting to be a conversation rather than a checkbox, which some people find they prefer.

What you should not do is find out in week five. The building has been like that for years. The only variable is when somebody asked.