Condo Financing: Warrantable, Non-Warrantable and FHA-Approved Buildings

Condo financing comes down to one question most buyers don’t think to ask: will lenders approve the building? A warrantable condo meets the project standards set by Fannie Mae and Freddie Mac, so conventional loans work normally. A non-warrantable condo misses at least one standard and usually needs a specialty loan with a larger down payment. FHA and VA loans add their own approval layers. Knowing which category a building falls into before you write an offer saves time, money and a lot of stress, so here’s how each works in Northern Virginia.

Warrantable vs. non-warrantable: what the terms mean

“Warrantable” is industry shorthand. It means a lender can sell the loan to Fannie Mae or Freddie Mac because the condo project meets their eligibility rules. The lender reviews the project, typically using a condo questionnaire completed by the association or management company, plus the budget, insurance and governing documents.

Fannie Mae’s list of ineligible project characteristics gives a good picture of what makes a building non-warrantable. Examples include:

• Single-entity ownership: in projects with 21 or more units, one entity owning more than 20% of units.
• Commercial space: non-residential space above 35% of the project.
• Condo-hotel operations: projects run like a hotel, with rental pooling or limits on owner occupancy.
• Critical repairs: significant deferred maintenance or unfunded repairs, including repairs over $10,000 per unit that should be done within 12 months.
• Litigation: pending lawsuits involving safety, structural soundness or habitability.
• Non-incidental business income: the association earning more than 10% of its budgeted income from businesses such as a restaurant it operates.

Fannie also flags projects where 75% or more of units are investor-owned or second homes, or where units are under 400 square feet, for extra lender scrutiny. Lenders also look closely at the association’s budget, reserves, insurance coverage and how many owners are behind on dues. Each lender applies the current guide, so the details can change.

FHA-approved condos

For an FHA loan, the condo project generally must be on HUD’s FHA-approved list, or the unit must qualify for a single-unit approval. Under the rule HUD finalized in 2019, according to HUD’s announcement:

• Project approvals last three years and then must be recertified.
• Most approved projects need at least 50% owner-occupied units.
• FHA will insure up to 50% of the units in an approved project.
• Single-unit approvals are available in some completed projects that aren’t approved, with limits on how many FHA-insured units the building can have (10% in projects of 10 or more units).

You can search approved projects on HUD’s website. Approvals expire more often than people realize, so check the expiration date, not just whether the building appears. My FHA loan guide covers the borrower side.

VA-approved condos

VA loans also require the condo project to be accepted by the Department of Veterans Affairs. Plenty of Northern Virginia buildings are accepted, but many are not, and a building that works for a conventional loan may not be on the VA list. If a building isn’t, the association or a lender can request a review, which takes time. Check the status at the start of your search. My VA loan guide explains entitlement and funding fees, and the VA home loan site is the official source.

How the building affects your loan options

Building status	Conventional	FHA	VA	Typical non-warrantable option
Warrantable, FHA and VA approved	Yes	Yes	Yes	Not needed
Warrantable, not FHA or VA approved	Yes	Single-unit approval may be possible	Needs VA review	Not needed
Non-warrantable	No (standard loans)	Usually no	Usually no	Portfolio or non-QM loan, often 20% to 30% down
New project still selling units	Depends on review	Depends on approval	Depends on approval	Builder’s preferred lender may have options

Non-warrantable doesn’t automatically mean a bad building. Some well-run buildings are non-warrantable because of a large ground-floor retail component or a single investor owning many units. But it does narrow the pool of future buyers when you sell, which can affect resale value and time on market.

How to check a condo’s financing status before you offer

1. Ask the listing agent whether recent buyers used conventional, FHA or VA loans, and whether the building is FHA or VA approved.
2. Look up FHA and VA approval yourself, including expiration dates.
3. Ask your lender to check the building early. Many lenders keep records of projects they’ve reviewed recently.
4. Request key documents: the most recent budget, reserve study summary, insurance certificate, and any information about special assessments or litigation.
5. Read the resale certificate carefully when it arrives. My guide to the Virginia resale certificate explains your review period.
6. Watch for red flags in fees and finances. See seven HOA and condo fee red flags.

A worked example: same price, different buildings (illustrative)

These numbers are hypothetical, not quotes or current rates, to show how building status changes the cash needed.

	Building A (warrantable)	Building B (non-warrantable)
Price	$400,000	$400,000
Minimum down payment (illustrative)	5% ($20,000)	25% ($100,000)
Loan amount	$380,000	$300,000
Illustrative rate	6.50%	7.25%
Principal and interest	About $2,402 per month	About $2,047 per month
Mortgage insurance	Yes, until enough equity	Typically none at 25% down

In this example, Building B requires $80,000 more cash at closing, and the buyer pays a higher rate. The monthly principal and interest is lower only because the loan is smaller. A buyer with $40,000 saved can buy in Building A but not in Building B. That same dynamic affects the seller of a unit in Building B years later.

Common condo financing mistakes

• Falling in love with a unit before checking whether your loan type works in that building.
• Assuming FHA approval is current because the building was approved years ago.
• Ignoring a pending special assessment or major repair project that could make the building ineligible mid-transaction.
• Waiting until after ratification to send the condo questionnaire to the management company, which can take days or weeks.
• Choosing a lender who rarely finances condos. Ask how many condo loans they close in Northern Virginia.
• Overlooking how non-warrantable status will affect your resale years from now.

This is general information, not lending advice. Program rules change, so confirm current guidelines with a licensed mortgage lender. For more, see my comparison of condos, townhouses and single-family homes.

Frequently asked questions

What does non-warrantable condo mean?

It means the condo project doesn’t meet Fannie Mae or Freddie Mac eligibility standards, so lenders can’t sell standard conventional loans on it. Buyers usually need a portfolio or specialty loan with a larger down payment, or cash.

How do I know if a condo is FHA approved?

Search HUD’s FHA-approved condominium list by project name or location and check the approval’s expiration date. If the project isn’t approved, ask a lender whether the unit may qualify for single-unit approval.

Can I use a VA loan to buy a condo?

Yes, if the condo project is accepted by the VA. Check the VA’s condo list early. If the building isn’t listed, approval may be possible but can take time.

Why do lenders care about how many condo units are rented?

A high share of investor-owned units can signal more risk for the association’s finances. FHA generally requires approved projects to be at least half owner-occupied, and Fannie Mae calls for extra review when 75% or more of units are investor-owned or second homes.

Sources

• Fannie Mae Selling Guide B4-2.1-03: Ineligible Projects
• HUD: 2019 FHA condominium rule announcement