A non-warrantable condo is a unit in a building that Fannie Mae or Freddie Mac will not accept as collateral. Because most conventional lenders sell their loans to one of those two agencies, a building that fails the agency project review cuts the unit off from the standard conventional mortgage market. Buyers usually find this out after they are already under contract, when the lender requests the condo questionnaire from the association and the answers come back with a problem.
In Florida, the issue shows up more often than in most states. The state has a large inventory of older coastal high-rises, resort-style buildings with short-term rental activity, and associations dealing with new inspection and reserve laws passed after the Surfside collapse. Each of those conditions maps directly to something in the agency rulebook.
Warrantable Means the Building Passed the Agency Project Review
The word warrantable comes from the lender's obligation to warrant, or certify, that a condo project meets Fannie Mae or Freddie Mac eligibility standards at the time the loan is sold. Fannie Mae's Selling Guide, Chapter B4-2, lays out those standards. A lender completes a project review, typically through Fannie Mae's Condo Project Manager tool, and certifies the building based on the association's documents, budget, and questionnaire responses.
A warrantable condo is one where that certification can be made. A non-warrantable condo is one where it cannot, either because the building has a characteristic on Fannie Mae's ineligible list or because it fails one of the financial tests in the full review. The distinction has nothing to do with the borrower's credit, income, or down payment. A buyer with excellent qualifications can be turned down on a unit in a non-warrantable building because the collateral, not the borrower, fails the test.
Fannie Mae's Ineligible Project List Covers Most Florida Problem Buildings
Fannie Mae Selling Guide section B4-2.1-03 lists the project characteristics that make a condo ineligible regardless of anything else in the file. Several of them are common in Florida:
- Projects operated as a hotel, motel, or resort, including buildings with mandatory rental pooling, daily or short-term rental services, front-desk registration, or a name that includes hotel or resort
- Projects where a single entity, such as an investor group or the developer, owns more than 20 percent of the units in a building with 21 or more units, or more than two units in a smaller building
- Projects where commercial or mixed-use space exceeds 35 percent of the total square footage
- Projects where the association is a party to pending litigation involving safety, structural soundness, habitability, or functional use of the building
- Projects in need of critical repairs, including material deficiencies, water intrusion, advanced deterioration, or unfunded repairs costing more than $10,000 per unit that should be done within 12 months
- Projects that failed a state or local mandatory structural inspection, or that are under a partial or full evacuation order
- Projects that are terminating, dissolving, or involved in bankruptcy or receivership
Timeshares, continuing care communities, and projects with mandatory club memberships owned by a third party are also on the list. Fannie Mae will also mark a project as Unavailable in Condo Project Manager when it has independently determined the building is ineligible, and no lender can override that status.
Financial Tests in the Full Review Can Also Disqualify a Building
Even a building with none of the ineligible characteristics above can fail the full review on its finances. Under Selling Guide section B4-2.2-01, the lender must confirm that no more than 15 percent of units are 60 or more days past due on regular assessments, and no more than 15 percent are 60 or more days past due on any special assessment. The lender must also review the association's budget and confirm that at least 10 percent of budgeted assessment income is allocated to replacement reserves, unless a qualifying reserve study shows the association is adequately funded another way.
Special assessments get their own scrutiny. The lender must document what the assessment is for, when it was approved, how much remains to be collected, and when it will be paid off. If the assessment is tied to a critical repair that has not yet been completed, the project is ineligible until the work is done and documented.
If a structural or mechanical inspection was completed within three years of the review date, the lender is required to obtain and read the report. Any unaddressed critical repair noted in that report makes the project ineligible until an engineer confirms the work is complete.
Florida's Milestone Inspection and Reserve Laws Feed Directly Into the Review
Florida Statute 553.899 requires condominium buildings three stories or taller to complete a milestone structural inspection by the end of the year the building turns 30, with re-inspection every 10 years, and local enforcement agencies may require the first inspection at 25 years for buildings near saltwater. A companion provision in Statute 718.112 requires a structural integrity reserve study and restricts the association's ability to waive reserves for structural components.
These laws matter for financing because they generate exactly the documents Fannie Mae now requires lenders to review. A milestone inspection that identifies structural repairs, or a reserve study that shows the association is underfunded, becomes part of the loan file. The result is that many older Central Florida buildings that financed without difficulty a decade ago now trigger additional questions, special assessments, or outright ineligibility.
FHA and VA Run Their Own Approval Systems
Government-backed programs do not use Fannie Mae's project review, so a building that is non-warrantable for conventional purposes is not automatically off-limits for an FHA loan or a VA loan. Each agency maintains its own approval process with its own tests.
FHA requires the project to appear on HUD's approved condominium list or to qualify under the Single-Unit Approval process, which applies to units in unapproved projects that are complete, contain at least five units, and meet a subset of the full project approval tests. Those tests include owner-occupancy percentages, limits on the share of units that are FHA-insured, limits on units in arrears, and individual owner concentration.
VA requires the condominium project to be on VA's approved list before a VA-guaranteed loan can close on a unit there. A project that is not yet approved can be submitted for VA review, but that process takes time and is not guaranteed to succeed.
Neither program will approve a building with the core problems on Fannie Mae's list, such as hotel-style operations or unresolved structural defects. A building that fails conventional review for a purely financial reason, however, may pass one of the government reviews.
What Buyers Can Do When a Building Comes Back Non-Warrantable
The first step is to find out why. The condo questionnaire and the lender's review notes will identify the specific failure, and the remedy depends on which one it is. Some issues are permanent, such as a building that operates as a resort. Others are temporary, such as a special assessment for a completed repair that has not yet been paid off, or litigation that is about to settle.
For temporary issues, the buyer's options include extending the financing contingency, negotiating a seller credit or price reduction to reflect the added risk, or asking the association for updated documentation that clears the condition. For permanent issues, the realistic paths are a portfolio loan held by a bank or credit union that does not sell to the agencies, a non-QM lender that specializes in non-warrantable units, or a cash purchase. Portfolio and non-QM programs typically require larger down payments and carry higher rates than agency loans, and their availability changes with market conditions.
Buyers who plan to use a jumbo loan should also confirm the lender's condo standards before writing an offer. Jumbo loans are not sold to Fannie Mae or Freddie Mac, but most jumbo investors apply project review standards that are similar to or stricter than the agency rules.
How Edge Mortgage USA Fits Into a Condo Purchase
Edge Mortgage USA originates home purchase and refinance loans in Orlando and Central Florida, with conventional, FHA, VA, and jumbo programs. Each of those programs applies its own project standards, so the review described above is part of underwriting on any condo unit financed through them. John Pennington is the loan officer a borrower works with from application through closing, including when underwriting requests additional documentation such as association records. The company also quotes Florida-specific closing costs, including documentary stamp tax, intangible tax, and homeowners insurance, upfront rather than at the closing table, which matters on condo purchases where the master policy and unit policy split affects the insurance estimate.
Talk With Edge Mortgage USA About a Specific Building
If you are considering a condo in Central Florida, we can discuss which of our loan programs fits the property and what the project review will require from the association. Contact Edge Mortgage USA to get started.
This article is for educational purposes only and does not constitute legal, financial, or lending advice. Project eligibility standards are set by Fannie Mae, Freddie Mac, HUD, and the Department of Veterans Affairs and are subject to change. Eligibility for any loan program depends on the specific property, the association's documentation, and the borrower's qualifications at the time of application.
