Condotel vs Non-Warrantable Condos

This blog will cover and discuss qualifying for condotel vs non-warrantable condo loans. We will review how to get a mortgage for condotel vs non-warrantable condominiums. You cannot get traditional mortgage loans for condotel and non-warrantable condominium units. However, qualifying for condotel and non-warrantable condo loans is possible with non-QM mortgage loans. Qualifying for condotel and non-warrantable condo loans was very difficult until recently. Gustan Cho Associates are mortgage brokers licensed in 48 states  including Washington, DC, Puerto Rico, and the U.S. Virgin Islands with over 250 wholesale lending partners. The team at Gustan Cho Associates are experts in condotel and non-warrantable condo loans. In the following paragraphs, we will cover qualifying for condotel vs non-warrantable condo loans.

What Are Condotel vs Non-Warrantable Condos?

In this paragraphs, we will cover the difference between condotel vs non-warrantable condos. What are condotel units? Condotels are also referred to as condo hotel units. Condotels are condominium units in a hotel complex. Major hotel chains like the Marriott, and Hyatt Hotels have certain wings or floors in the hotel complex designated for units that are privately owned. These privately owned units in a hotel are called condo hotel units or condotels. Condotels are not timeshares. Condo Hotel units is considered real estate property and buyers can qualify for a mortgage on condotel financing. However, you cannot get a traditional government or conventional loan for condotel financing. Non-QM lenders offer condotel financing on condo hotel units. Speak With Our Loan Officer about Condotel Loans

How Does The Condo Hotel Ownership and Revenue Share System Work?

Condo hotel unit owners can enjoy the condotel units as a second home. You cannot tell a condotel as a privately owned hotel unit. Condotels are blended in with other hotel owned rooms. When a condotel unit owner is not using the condo hotel unit, they can rent it out. The neat part about owning the condo hotel unit is the hotel condo association can maintain and rent the condotel unit. The hotel condo association will take a percentage of the revenues for renting the condotel unit. All maintenance and upkeep is part of the hotel’s share of the rental revenues.

What Is The Main Difference Between Condotel vs Non-Warrantable Condos?

Non-Warrantable condominiums are regular condominiums in a condo complex. However, the condo complex consists of 51% or more investor-occupied units. To be classified as a warrantable condo, the complex needs to be at least 51% or more owner occupant. As mortgage lenders seek to reduce their respective lending risk, certain condominiums around the country are generally being specifically excluded from approval. Approval problems have hurt purchase and refinances activity in such cities as New York City, Chicago, Boston, and everywhere else that a “non-warrantable” condominium exists. In this article, we will discuss and cover qualifying for condotel and non-warrantable condo loans.

What Are Non-Warrantable Condos?

What is a non-Warrantable Condo? A condominium that does not meet the minimum eligibility standards as set by Fannie Mae and/or Freddie Mac. Fannie Mae and/or Freddie Mac will only purchase warrantable condominium conventional loans. When condo buildings fail Fannie and Freddie’s minimum standards, it’s often for one or more of the following reasons: The project is more than 10% owned by one entity. 50% or more of the project units are rentals. More than 20% of the building square footage is “commercial”

Non-QM Mortgage Lenders For Condotels and Non-Warrantable Condos

Only non-QM mortgage lenders can finance non-warrantable condos and condo hotel units. Non-QM lenders are portfolio lenders. A portfolio lender is a mortgage lender who keeps the loans they fund inhouse or sells it to private institutional investors and not Fannie Mae and Freddie Mac. The project is filed with the SEC and is sold as an investment opportunity. The project is “new” and grants concessions and/or abatement not listed on the settlement statement.

What Makes a Condo a Non-Warrantable Condominium?

There are other non-warrantable traits, too, including too many “unsold units”, certain types of pending litigation, and length of time that the condo board has been in control of the building’s owners. The list is quite long, actually. Another non-warrantable trait is homeowner association dues being paid less than 85% current. This means that if more than 15% of a condo building’s owners are delinquent to the association, conforming mortgages are unavailable to everyone that lives there, and everyone attempting to buy there, too. Condotels are very popular in resort and waterfront resorts throughout the United States. Get qualify for a Non-Warrantable condos loans

What Are Condotels?

Condotel is a portmanteau of the words “condominium” and “hotel”. It describes buildings used as both a condo and a hotel, with owners keeping the rights to rent their units while they’re not actually using them. Condotels are most common in coastal resort type areas. Condotel Financing  is back.

Condotel buyers and owners have been experiencing extreme difficulty in trying to obtain Condotel loans in resort and waterfront resort areas. The major differences in condotel vs non-warrantable condos is most condotels are in a hotel complex.

Both purchase and refinance condotel and non-warrantable condo financing are becoming increasingly popular. Many owners currently have mortgages that range from 6% or higher. This is because they got their mortgages prior to the real estate crash of 2008 when mortgage rates were much higher than it is today.

In Mortgages, It’s All About The Building AND The Buyer

The mere presence of any of these characteristics instantly characterizes the building as “non-warrantable”, preventing building owners from securing conventional mortgage financing on today’s mortgage guidelines. This fact can surprise homeowners who may otherwise be well-qualified. For home buyers and owners facing a non-warrantable condo situation, good credit, good income, and good down payment suddenly becomes irrelevant. It’s a new truth in lending.

Financing Condotel and Non-Warrantable Condos

Most lenders do not want to finance condo-hotel units. Whether it is a purchase or refinance mortgage, the reason lenders do not want to finance condotel units and non-warrantable condominiums is because they need to hold it in-house and portfolio the loan. For unit owners needing to refinance their current loan, they should see if their current lender will refinance their current loan. Most of the owners come back to me and tell me that their bank is not willing to refinance their existing mortgage loan. Most owners have their condo hotel mortgages with big banks like Chase and Wells Fargo. Banks like Chase WILL NOT refinance a condo-hotel unit mortgage. It does not matter whether the owner is a preferred client, or whether the LTV is below 50% and the condo unit is cash-flowing.

Condotel vs Non-Warrantable Condos Mortgage Process

Borrower needs to complete a condominium questionnaire provided and completed by the condo hotel homeowners association manager: The condominium questionnaire is then reviewed by an underwriter to see whether the condo-hotel complex does not have any major pending litigation and complies and if it does, the unit is approved and the mortgage process can continue. If the condotel qualifies, we then take your preliminary application (mortgage applicants can APPLY NOW ) and the loan gets processed and gets underwritten.

Underwriting Process of Condotel vs Non-Warrantable Condos

Part of the underwriting and approval process includes the file being reviewed by the credit committee. In order for the file to go to the credit committee, the underwriter signed off on the loan and the credit committee will just need to review it. Once the credit committee agrees with the underwriter’s recommendation, the loan file gets back to the underwriter and conditional approval is issued. The conditions need to be worked and once the borrower provides all the conditions, the file is reviewed by the mortgage processor and submitted for a clear to close.

Qualifying For Condotel vs Non-Warrantable Condos on Purchases

Financing condotel vs non-warrantable condos are similar but the down payment requirements differ. On condotel purchase loans here are the requirements: 25% down payment on first and second homes. 30% down payment if buyers have more than 2 properties. One year reserves of principal and interest for each property borrower owns. Reserves do not have to be in the form of cash but need to be liquid investments such as securities accounts, pension accounts, and other documented asset accounts.

Mortgage Options on Condotel vs Non-Warrantable Condos

Gustan Cho Associates offers both 30-year fixed rate mortgages and adjustable rate mortgages on condotel and non-warrantable condos. Condotel and non-warrantable condominium loans are adjustable rate mortgages amortized over 30 years. ARMS available are 3/1 ARM, 5/1 ARM, and 7/1 ARM. If any of you are interested in purchasing or refinancing a condo hotel or non-warrantable condominium please do not hesitate to contact Peter Arcuri of Gustan Cho Associates.

Qualify for condotel vs Non-Warrantable Condos on purchase

Getting Approved For Financing Condotel vs Non-Warrantable Condos

Gustan Cho Associates are experts in helping buyers of condotel and non-warrantable condominiums get approved for financing. Peter Arcuri is an expert of condotel and non-warrantable condo financing. Peter Arcuri, the author of qualifying for condotel vs non-warrantable condos. Peter Arcuri is an associate contributing editor and the regional managing director at Gustan Cho Associates. Peter is an expert in real estate, title, investments, and lending. Peter Arcuri’s passion is educating the public and fellow loan officers about his knowledge in real estate investments and guiding first time home buyers on qualifying for home loans with no stress. Stay tuned to Peter’s upcoming blogs.

This blog on condotel vs non-warrantable condos was updated on May 24th, 2024.