Navigating Non-Warrantable Buildings in Chicago's Condo Market
Thinking about buying a condo in Chicago? You might come across the term "non-warrantable building" during your search. But what exactly does it mean, and why are these buildings becoming more common?
Decoding Non-Warrantable Condos:
In Chicago, a non-warrantable condo building simply means it doesn't meet the standards set by Fannie Mae, Freddie Mac, or other government agencies for issuing conventional mortgages. This translates to difficulty securing a traditional loan to buy a unit in such a building.
The Rise of Non-Warrantable Buildings:
Several factors are contributing to the rise of non-warrantable buildings in Chicago's condo market:
- Stricter Requirements: Fannie Mae and Freddie Mac have tightened their condo approval criteria in recent years.Condo associations now need to have stronger financial reserves, lower delinquency rates, and a healthy mix of owner-occupants compared to renters.
- Investor Influx: An increase in investors buying condos can affect warrantability. Lenders prefer buildings with a majority of owner-occupants for stability, since investors are more likely to rent out their units.
- New Construction: Brand new condo buildings with limited sales history might not qualify as warrantable until more units are sold and the condo association establishes a track record.
How Past Upkeep Matters:
Beyond these factors, a condo building's history of repair and upkeep can significantly impact its warrantability status.Here's why:
- Reserve Funds: Lenders require condo associations to maintain healthy financial reserves for repairs and maintenance projects. A history of deferred maintenance depletes these reserves, raising red flags and potentially leading to non-warrantability.
- Special Assessments: If a building has had to levy special assessments on condo owners due to past neglect, it can be a sign of poor financial management and affect warrantability.
- Building Condition: Visible signs of deferred maintenance, like a leaky roof, cracked foundation, outdated electrical systems, or general disrepair, raise concerns about the building's safety and future costs. This can negatively impact the ability to qualify as warrantable.
Looking Beyond Repairs:
It's not just about physical upkeep. Here are other factors that can influence a building's warrantability:
- Delinquency Rates: High condo fee delinquency rates indicate financial instability within the association,impacting its ability to maintain reserves and make future repairs, jeopardizing warrantability.
- Lawsuits: A history of lawsuits between the condo association and residents or contractors can be a red flag for lenders, signaling potential issues with management, finances, or the overall health of the building.
The Takeaway:
A condo building with a history of skimping on repairs and upkeep can have a domino effect on its finances and overall health. This can make it difficult to meet the stricter requirements set by lenders, pushing the building towards non-warrantability.
For Savvy Chicago Condo Buyers:
If you're considering buying in a Chicago condo building, it's crucial to find out if it's warrantable before you get too attached. This can significantly impact your financing options and potentially the resale value down the line. Consult with a real estate agent specializing in Chicago condos to navigate the complexities of warrantability and make an informed decision.
