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Yikes, that title sounds a little scary, doesn’t it? It doesn’t have to be! In my last post, I shared our exciting news about buying a condo in Florida. I am looking forward to sharing all about the actual buying process. We learned a LOT throughout this experience (especially when it comes to buying a non warrantable condo), and today, I want to share my newfound knowledge with you.
In fact, as I am updating this post today, in 2023, we have financed four non warrantable condos, all short-term rentals. We have learned so much about everything Airbnb as well. I am proud to be one of the top-rated Airbnb hosts on the platform!
Buying A Vacation Rental in Florida
So, this is how it usually goes.
You head down to Florida on vacation and stay in a fantastic vacation rental. It’s incredible because it’s Florida!
After a day or two, you get to thinking, “Hey, we should buy one of these!” You look on Zillow and find many available listings and even an open house down the street. You pop by, and the excitement grows. You could get a realtor right then and there. Or you could head home with it still in your mind.
Before you know it, you know you, with certainty, want to buy a vacation home or a condo there at the beach!
This is how it was for us! We fell in love with some places in Seacrest Beach, along the famous 30A beaches, and even had RocketMortgage get us a pre-approval letter to finance our vacation home. We were on top of the world. And then we heard these words for the first time.
Non-Warrantable Condo.
What does that even mean?
We googled it. Then we called our guy at RocketMortgage, who told us they could not finance a non-warrantable condo in Florida. In fact, you will find that most traditional lenders can’t and won’t finance most vacation rental condos.
So, unless you are ready to pay cash (arguably the best way to buy a vacation home), you will have to go a different route.
What is a Non Warrantable Condo?
“It does not meet conventional guidelines and will not be bought by government-backed entities like Fannie Mae and Freddie Mac.”
First, the definitions are vague, and there is no central non warrantable condo list out there or easy way to see if the condo you want to buy is non warrantable.
Typically, you have to find out the hard way. Most vacation destination short-term rental condos are considered non-warrantable because they are transient in nature. This is as opposed to regular residential condos you live in, which are typically regarded as warrantable and can be bought and sold, much like a typical single-family residence.
Warrantable vs Non Warrantable Condo
Essentially, a condo is warrantable by default but becomes non warrantable if the community or condo association it is a part of is structured in a particular way.
Here are some of the factors that generally make a condo non-warrantable:
- Over 50% of the units are not owner-occupied.
- The complex allows short-term rentals.
- The project still needs to be completed.
- A single person owns more than 10% of the total units.
- The complex / HOA is under current litigation.
There are other factors at play. It’s basically up to the lender and underwriters to make that designation.
I did a lot of research, and since the mortgage crisis of 2008, where many property owners could no longer make payments on 2nd homes and vacation properties, it has been even harder to finance these. At this point, these types of loans are considered too risky for many lenders, and most prominent banks won’t give you a non-warrantable condo loan. Generally, non warrantable condo Fannie Mae or Freddie Mac loans are not an option.
To summarize, most of the condos you booked on Airbnb and are staying in on vacation (and dreaming about buying) will be considered non warrantable condos. So, before you go any further, ask your lender or your realtor whether they believe that condo is warrantable. Or you can look at single-family homes or even some townhouses.
How Do You Buy A Non Warrantable Condo?
Well, the best way to purchase any investment property is to pay cash, if I am being honest.
However, if you want to finance it and get a non warrantable condo loan, as we did, you will need to find a lender who can offer you a portfolio product. Also, while some lenders will finance a second home, most won’t do a third or fourth and certainly won’t finance investment properties the same way they do your primary and secondary resistance. Generally, once you have financed a second home, further loans are also going to be portfolio-type loans.
Typically, these are specialized lenders, and these loans come at a cost. Most often 20%-40% down payment is required. The loan will come at a higher rate than current rates for a standard home loan. Most of these loans will be 5/7 year ARMS. Good credit and cash on hand are usually pretty important in underwriting these loans. We have learned that another critical factor when trying to finance a non-warrantable condo is your debt-to-income ratio.
We worked with Obie Oberman, a mortgage consultant with Capital City Home Loans, who is local to the area. He is very knowledgeable when it comes to the 30A area and non-warrantable condos, and we were able to secure financing and close in 30 days. Matt and I have since used him for all four of our investment properties in the Rosemary Beach area and have been able to secure financing each time.
I Want To Buy A Short Term Rental. Where Do I Start?
If buying a vacation rental condo in Florida is something that you want to do, the very first step would be to find a realtor who is familiar with the local condo and their governing documents/condo association. Then, reach out to a lender to see what type of loans are available at that time.
The key is to be prepared and know that you will likely have to come up with a minimum of 20% to put down, and rates will likely be higher than a traditional home mortgage loan. You can make it happen! And even if you can’t right now, you can have a solid idea of what you will need to make it happen.
It’s kind of crazy that neither Matt nor I had ever even heard the phrase “non-warrantable condo” until we started this process. We learned a lot, and I hope that by writing this, I can save you some time in your own journey!
So, yes, we financed a Non Warrantable Condo four times and have zero regrets! We have been able to spend a lot of time down on 30A in the years since, and we look forward to the future memories we will make there as a family! Additionally, our goal is to pay down the principal much sooner to avoid paying as much interest over the duration of our loan.
Airbnb Hosting Resources
Owning your first short-term rental can be overwhelming! Here at Our Little Lifestyle, I have put together so many FREE resources for you. In late 2023, I have also launched a 5-Star Airbnb Hosting Facebook Group where you can have direct access to me!
You can click here to read through all of my Airbnb hosting articles, which include the following and then some!
The Best Bedding For Your Airbnb
Picking The Perfect Airbnb Mattress
Choosing The Best TV For Your Airbnb
How To Make Your Airbnb Baby Friendly
Coastal Design Inspiration For Your Beach Condo
And there is so much more!
In addition, my favorite products are organized in my Amazon Storefront. So, it’s never been easier to get started following my recipe for success!
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