Heads Up: Non-Warrantable Condos + “Declining Market” Appraisals = Deal Risk

I got a call yesterday from an agent friend who had a non-warrantable condo in escrow. Buyer was putting 20% down, file was clean, everything was ready to go… and then the final condition came in:

Appraisal marked the property as being in a DECLINING MARKET.

And that one checkbox may blow up the entire deal. Oh, and the lender didn't even check the appraisal before it went to Underwriting!  UGH!

Here's what you should be watching for moving forward.

Non-warrantable condos are typically financed through Non-QM lenders, and the lender pool is much smaller than conventional/FHA/VA.

Not every Non-QM lender will take every non-warrantable condo deal. Some lenders won't touch:

• Balcony / structural issues
• HOA litigation
• Deferred maintenance
• Rental-heavy buildings
• And almost all lenders are extremely sensitive to insurance issues – but we do them! LOL!

So, the loan is already more lender-specific and more sensitive than a standard condo deal.

Why "Declining Market" Is a Big Deal

When an appraisal states the market is declining, lenders see it as higher-risk collateral.

Even if the buyer is strong and the file is clean, the lender may respond by:

• increasing down payment requirements (often +5%)
• increasing the interest rate
• reducing max loan-to-value
• requesting additional review / stronger comps
• delaying closing or requiring a restructure

So even if your buyer is putting 10%… that may not be enough anymore once that box gets checked.

This Is Happening in Certain Condo Pockets

Some buildings and areas are seeing declines, not because the entire market is crashing, but because the buyer pool is smaller. Non-warrantable condos have softened because 10% down is required for them. Most condo buyers are first-time buyers, and 10% down is a big ask. The rates on those are not great either!  With 20% down, the rates are much more reasonable, but again this is a first-time buyer type of complex.

Important note:

The whole market is not declining.

This is showing up mostly in select condo communities, especially non-warrantable ones.

Can You Switch Appraisers? Sometimes, yes. I know who did that appraisal, and she is correct to call it in as declining! The issue with this one is that the buyer was ready for docs, had 20% down, and now the bank wants 25%. Not sure who this lender is, but we do 10% down, so we would still be OK on the deal in question even in a declining market!

Realtor Strategy Moving Forward

• If your listing is non-warrantable, be careful accepting offers with lower down payments.
• A buyer with 10% down may end up needing 15%.
• Be careful with the lender and make sure they have options even if the buyer has 20% down.
• Make sure the lender reviews the appraisal before they send it to the Underwriter.
• Make sure the lender knows which lenders will still lend and under what terms

We do these loans regularly and have options when others don't.

Bottom Line

Non-warrantable condos already come with fewer financing options.

When you add a "declining market" appraisal on top of it, lenders often tighten requirements quickly, usually through a higher down payment, worse pricing, or both.

Declining markets for non-warrantable condos will likely become more common, so please be aware and structure your escrows accordingly.

If you ever want me to pre-review a condo project before you list it or go into escrow, I am happy to help.

Please let me know if you have any questions or if you or any of your clients, friends, or family members need my guidance. I’m just a call, text, or email away.

📞 Direct Line: 661-291-2222 – Text OK

📞 Cell: 661-714-6258 – Text OK

📞 Office: 661-260-2970 ext. 2222 – Text OK

📧 Email: Mike@AugustaFinancial.com

But wait, there’s more…

Interest Rates

Interest rates are off a tad today but still maintaining at their best levels since August 2022.  This is not a world-record interest rate, but it is good news, and hopefully, more bad news will come out so rates can go down a bit more.

Loan Programs

• We do loans on non-warrantable condos!
• We offer 12-day escrows for pre-approved buyers, including conventional, FHA/Jumbo/Bridge loans.
• We provide loans in all 50 states, so call me with anything you need.
• Government loans (FHA/VA/USDA) are in the 5s.
• Conventional loans up to $832,750 are in the mid to high 5’s.
• High-balance loans from $832,751 to $1,249,125 are also in the high 5 and 6s.
• Jumbo loans above $1,249,125 are in the high 5’s and 6’s.
• ARMS in the 5’s and some in the 6’s
• Bank statement loans are available again with 10% down, with larger down payments in the 6’s++.
• Profit and Loss Statement loans require 20% down - no bank statements needed, only a profit and loss statement!
• 0 down loans are available in the high 6s, with a minimum credit score of 620, up to $1,325,000.
• Private Money lenders offer Hard Money Loans with 35% down.
• No-Ratio Loans require a 30% down payment.
• DSCR (Debt Service Coverage Ratio) loans are available with as little as 15% down.
• Bridge Loans typically have an interest rate of 7.99% with limited fees, helping you get where you need to go!
• 3/2/1 Buydowns, 2/1 Buydowns, and 1/0 Buydowns are available at great starting rates!

Please note that interest rates are subject to change without notice, and the information above reflects LA County Loan Limits.

**Good News for Condos:**   

Nada today!

**Bad News for Condos***     

Canyon Park!  Naughty Balconies!!

CONDO HELP!!!

If you have a listing or a buyer interested in a specific condo and are unsure whether it is warrantable or Non-warrantable, please call me, and we can look up Fannie’s list in real-time. We don’t know when something has changed, and it would be impossible to track everything day by day, but we don’t mind looking up a few items each day.

The full state of California’s naughty list has been added to:

MikeMeena.com! See the link below:

https://mikemeena.com/non-warrantable-condos/

Let me know if you hear anything new about condos or townhouses.

I am available every day if you need anything.

📞 Direct Line: 661-291-2222 – Text OK

📞 Cell: 661-714-6258 – Text OK

📞 Office: 661-260-2970 ext. 2222 – Text OK

📧 Email: Mike@AugustaFinancial.com

Have a great day and an even better tomorrow! Please call me when you have a client who needs to borrow!