May 30

Financing a Non-Warrantable Condo [DSCR Loan Options]


Are you considering buying a condo unit as a short-term rental investment property? If so, you may encounter the challenge of financing a non-warrantable condo. In this blog post, we will delve into what it means to finance a non-warrantable condo and discuss your options, specifically focusing on Debt Service Coverage Ratio (DSCR) loans. Read on to find out how you can navigate this situation and secure the financing you need.

Understanding Non-Warrantable Condos

A non-warrantable condo refers to a condominium unit that is not on the approved list of the Federal National Mortgage Association (Fannie Mae). The reasons for a condo being deemed non-warrantable vary. The most common factor is the occupancy levels within the building. If one owner owns a majority of the units (over 10 percent), it can classify the condo as non-warrantable. Similarly, if the majority of units are occupied by investors rather than owner-occupiers, it can also lead to non-warrantable classification. Other factors include ongoing lawsuits, inadequate reserve funds, and various other issues related to the building's compliance with lending standards.

Financing Options for Non-Warrantable Condos

If you find yourself in a situation where your lender rescinded the pre-approval due to the condo being non-warrantable, all hope is not lost. While traditional banks may be reluctant to provide financing for such condos, there are non-bank and non-qualified mortgage (non-QM) lenders that offer DSCR loans. These loans consider the property's Debt Service Coverage Ratio, which helps determine its ability to generate sufficient income to cover its expenses, including the mortgage payment.

It's important to note that financing terms for non-warrantable condos typically come with a slight disadvantage compared to single-family homes. Condos usually require a higher down payment and have a lower loan-to-value (LTV) ratio. For instance, while you may be eligible for an 80% LTV on a single-family home or 75% LTV on an owner-occupied single-family home, a non-warrantable condo may only allow a 60-65% LTV ratio. Despite this lower leverage, non-warrantable condos remain financeable through DSCR loans.

Exploring Non-QM Lenders and Rental Surveys

To broaden your options, it's worth exploring non-QM lenders who specialize in financing non-warrantable condos. These lenders may conduct a rental survey, assessing the property's potential as a long-term rental, even if you intend to operate it as a short-term rental. If the income projections qualify for a long-term rental scenario, it opens doors to additional DSCR lenders. However, if the income qualification relies solely on short-term rental projections, the number of potential lenders may be more limited.

In any case, whether it's a projection-based or long-term rental scenario, there are lenders available to assist you. If you need guidance on selecting the right lender for your specific situation, feel free to book a call with our experts who can provide personalized advice tailored to your needs.


While a non-warrantable condo may pose challenges when it comes to financing, it's essential to remember that there are viable options available. By exploring DSCR loans from non-QM lenders, you can secure the financing you need for your short-term rental investment property. Make sure to do your due diligence when evaluating condo properties in the future, and consult with experienced realtors who can guide you towards warrantable options


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