Buying or selling a condo in New Orleans should be a breeze, right? With so many unique options in our city, from historic buildings in the French Quarter to modern developments in the Warehouse District, condos offer a lifestyle that appeals to many. However, there’s a catch that can make or break your deal: financing.
Condos are a different beast when it comes to securing a mortgage, and it all boils down to whether a property is considered warrantable or unwarrantable by lenders.
What Is a Warrantable Condo?
A warrantable condo meets the lending guidelines set by Fannie Mae and Freddie Mac. Why does this matter? These guidelines make it easier for buyers to get a conventional mortgage, which opens the door to more financing options, better rates, and, ultimately, more potential buyers for your condo.
Here are some key features of warrantable condos:
- At least 51% of the units in the building are owner-occupied (not rented out).
- No single entity owns more than 10% of the units (this includes developers).
- The HOA has adequate reserves to cover maintenance and unexpected expenses.
- The building has no pending litigation against the HOA or developer.
- Commercial use of the property is limited, usually to 25% or less of the building.
What Is an Unwarrantable Condo?Unwarrantable condos, on the other hand, don’t meet these guidelines. For sellers, this means fewer buyers since financing becomes much more challenging. Buyers looking at unwarrantable condos often need cash or must turn to non-conventional loans, which typically have higher interest rates and stricter terms.
Common characteristics of unwarrantable condos include:
- A high percentage of investor-owned units or short-term rentals.
- Pending lawsuits involving the HOA or developer.
- Insufficient reserves in the HOA’s budget.
- Buildings with significant commercial space, such as mixed-use properties.
Why Does This Matter in New Orleans?New Orleans’ condo market is as diverse as its culture, but that diversity often comes with complexity. For example, many buildings in the French Quarter and Uptown have higher rental ratios or ongoing litigation, making them unwarrantable. Even newer developments can fall into this category due to HOA reserve issues or developer ownership.
As a seller, understanding whether your condo is warrantable can help you price it effectively and market it to the right audience. As a buyer, knowing these distinctions can prepare you for potential challenges in securing financing.
Pro Tips for Sellers
- Know Your Condo’s Status: Before listing, ask your HOA or property manager about the condo’s warrantability. This will help you anticipate buyer questions and adjust your strategy.
- Highlight Strengths: If your condo is warrantable, mention that in your marketing. If not, work with your agent to target cash buyers or those with non-conventional financing options.
- Work with Experts: A knowledgeable agent and a lender experienced with condo financing can make a world of difference.
Pro Tips for Buyers
- Check Financing Options Early: Ask your lender whether the condo is warrantable before falling in love with a property.
- Consider the Long-Term: Unwarrantable condos may cost more upfront but could pay off if they’re in a high-demand area for rentals or short-term stays.
- Ask Questions: What’s the HOA reserve status? Are there any pending lawsuits? These can impact not only financing but also your future costs as an owner.
Researching the condo docs and getting the questionnaire to the lender early is a must for smooth financing. For warrantable condos, James Fidler at Nola Lending is great—he’s got a huge database of condos here. For non-warrantable condos, John Ismail with Keller Home Loans has programs that can make it work. If interested, I can connect you with them.