For most cooperatives in New York City, financing is readily available through the conventional loan process. However, some buildings and transactions are deemed non-warrantable, which can make finding financing for co-op apartments in these transactions challenging. When evaluating a building’s eligibility for financing, both Fannie Mae and Freddie Mac consider factors such as the building’s financials, the Master Insurance policy, the amendments to the By-Laws, and a Co-op Questionnaire. They assess these documents to ensure that the building is well-managed and does not pose any significant liabilities or extraordinary costs to the buyers. If a building meets their criteria, it is considered warrantable.
So, what makes a building non-warrantable? Several factors can contribute to this designation. One common issue is a low owner-occupancy ratio, where the percentage of rental apartments exceeds the percentage of owner-occupants. In some cases, a waiver can be sought if the owner occupancy ratio is only slightly below 50%. Another factor is pending litigation against the building. In such cases, it is important to determine if the insurance company will cover any potential damages. Additionally, inadequate budget or reserves can also make a building non-warrantable. The financials are evaluated to ensure that sufficient reserves are available for capital improvements and general maintenance.
Another factor that can affect warrantability is if the co-op does not own the land beneath the building and instead leases it from another entity. Financing becomes more challenging when there are fewer years left on the lease. Lastly, lender exposure can also contribute to a non-warrantable designation. If one bank has been actively lending in a building and reaches a certain threshold, it may choose not to continue lending due to the accumulated risk.
It’s important to note that a non-warrantable designation does not mean that a mortgage won’t be available. It simply means that the issue needs to be addressed to the satisfaction of Fannie Mae, Freddie Mac, or an alternative investor. We offer financing through various institutions and follow their guidelines to provide the best rates and terms available. We work closely with buyers, realtors, and the building to address any deficiencies and find suitable financing options.
