Understanding Non-Warrantable Condos and Non-QM Mortgages: Where They Overlap

In real estate financing, few terms cause more confusion for buyers than “non-warrantable condo” and “non-QM loan.” Both describe situations that fall outside the conventional lending box, yet they often overlap in practical ways. Understanding each can help buyers and investors approach these opportunities with realistic expectations.

What is a Non-Warrantable Condo?

A non-warrantable condo is a property that doesn’t meet the requirements set by Fannie Mae or Freddie Mac. That means it’s ineligible for conventional financing. Common reasons include:

• Too many units are owned by one person or entity.

• The building has active litigation or low reserves.

• More than half the units are investor-owned or rented.

• The homeowners association (HOA) relies heavily on a few owners for dues.

Because of these risk factors, lenders can’t sell the loans on the secondary market. Financing must be held in-house or through a portfolio or private program.

What is a Non-QM Mortgage?

A Non-QM (Non–Qualified Mortgage) is any home loan that doesn’t meet the strict criteria for a “Qualified Mortgage” under federal standards. These loans are designed for borrowers who fall outside the traditional mold, such as self-employed buyers, real estate investors, or people with recent credit events. Instead of W-2s and tax returns, lenders may verify income through bank statements, asset depletion, or DSCR (Debt Service Coverage Ratio) methods.

Rates are typically higher, and underwriting is more flexible, but reputable Non-QM lenders focus on borrowers with strong compensating factors—like good equity, reserves, or business cash flow.

Where They Overlap

Here’s where the two worlds meet: many buyers of non-warrantable condos end up using Non-QM loans. Since conventional and government programs like FHA or VA won’t approve those buildings, Non-QM lenders fill the gap. These programs allow lenders to make case-by-case decisions on projects that make sense financially, even if they don’t fit agency guidelines.

Down Payment Options

Down payment requirements vary, but typically:

• Non-warrantable condos: Expect 20% to 30% down. Some lenders may go as low as 10% with strong reserves or higher credit scores.

• Non-QM loans: Range from 10% to 25% down, depending on the program (bank statement, DSCR, or full doc).

• VA borrowers: Can sometimes still buy non-warrantable condos with 0% down, but only if the project is VA-approved or the lender allows a “spot approval.”

In short, if you’re buying a non-warrantable condo, Non-QM financing might be your best path forward—flexible, creative, and built for real-life borrowers rather than idealized ones.