By Eric Engelbert
What Is a Non-Warrantable Condo?
If you have been researching condos and come across the term "non-warrantable," you might think it is a red flag. Before you write off the idea, it is worth understanding what this really means and why a non-warrantable condo can still be a great purchase.
A non-warrantable condo is one that does not meet specific lending criteria set by Fannie Mae or Freddie Mac. These criteria often include:
- Whether the building has sufficient insurance
- Pending or active litigation involving the HOA
- Percentage of rentals vs. owner-occupied units
- Whether the construction is fully completed
- Deferred maintenance or unresolved structural issues flagged on the HOA questionnaire
If a property fails on one or more points, it is labeled “non-warrantable.” That does not mean you cannot finance it or that it is a bad investment.
California’s Balcony Law Is Creating More Non-Warrantable Condos
A growing reason for non-warrantable status in California is SB 326, the state’s balcony inspection law passed in 2019. The law requires condominium associations to have all exterior elevated elements, meaning balconies, decks, stairways, and walkways, inspected by a licensed structural engineer or architect. The initial inspection deadline was January 1, 2025, with follow-up inspections required every nine years after that.
SB 326 was a direct response to the 2015 Berkeley balcony collapse that killed six people and injured several others. A companion law, SB 721, applies similar inspection requirements to apartment buildings with three or more units.
Here is where non-warrantable status comes in. When a condo complex has not yet completed its required inspection, or when the inspection reveals structural issues that require repairs, lenders treat it as a risk flag. Fannie Mae and Freddie Mac updated their condo project eligibility guidelines after the 2021 Surfside condominium collapse in Florida to require specific information on the HOA questionnaire about deferred maintenance and structural conditions. A complex with an overdue balcony inspection, or one that is actively repairing balconies and elevated walkways, will typically fail those questionnaire requirements.
The practical result: any complex that has not completed its SB 326 inspection or has repairs in progress may be classified as non-warrantable until the work is done and documented. In Orange County, where a large share of the condo inventory was built in the 1970s and 1980s, this is affecting more projects than many buyers realize.
The good news is that this type of non-warrantable status is temporary. Once the HOA completes the required inspection and any needed repairs, and provides the documentation lenders need, the complex can regain warrantable status. Portfolio lenders who understand the California balcony law will often lend on these properties during the repair period, recognizing that the HOA is actively resolving the issue rather than ignoring it.
Lenders Still Lend on Non-Warrantable Condos
Many banks and portfolio lenders offer non-warrantable condo financing. These are often flexible loan products designed specifically for properties that fall outside Fannie/Freddie guidelines. Terms might require a higher down payment or a slightly different rate structure, but financing is absolutely available and common.
Example: Laguna Woods
Laguna Woods, a 55+ community in Orange County, is an example of a non-warrantable complex. The community has an estimated replacement cost of over $2 billion, yet the HOA maintains about $1.3 billion in insurance coverage.
Because of that shortfall, Fannie Mae classifies the complex as non-warrantable. But here is what is often overlooked:
- Laguna Woods has its own dedicated fire department
- The likelihood of a total loss is extremely low
- HOA dues were kept affordable by not increasing insurance coverage to the full replacement value
This is a case where the technical risk does not reflect actual risk. Many lenders agree and offer competitive loan options for buyers in Laguna Woods.
How to Know If a Condo Is Warrantable
Wondering whether a condo is warrantable? The fastest and most reliable way to find out is to ask an experienced real estate broker who understands how lending guidelines affect specific communities, like me, Eric Engelbert.
Because I work with both buyers and lenders throughout Orange County, I often know ahead of time which communities are currently considered warrantable and which are not. I can help you:
- Determine warrantability before you make an offer
- Connect with local lenders who specialize in non-warrantable condo financing
- Review HOA documents like insurance policies and condo questionnaires
- Navigate lender approval issues early, avoiding costly delays in escrow
In many cases, buyers do not find out a property is non-warrantable until they are already in escrow. That can lead to surprises, higher loan costs, or even cancelled transactions. When you work with a broker who knows how to spot potential issues in advance, you will be one step ahead.
If you are looking at a condo and want to know if it qualifies for traditional financing, ask me before you submit your offer. I will do the homework for you and make sure you are in a position to move forward with confidence.
Non-Warrantable ≠ Bad Investment
In Orange County, some of the best condo opportunities are non-warrantable, especially if you are buying for the long term. These properties often offer:
- Sound construction and infrastructure
- Stable or growing rental potential
- Excellent locations and community amenities
- Lower competition from buyers using conventional financing
Financing non-warrantable condos in Orange County is entirely doable. It just requires the right approach and guidance. Do not let the “non-warrantable” label scare you off.
Ready to Explore Your Options?
At Orange County Real Estate, Inc., we help clients buy and sell non-warrantable properties every day and partner with local lenders who specialize in financing non-warrantable condos. If you are curious about condos for sale in Orange County or want to understand your financing options, reach out. We would love to help you make an informed, confident move.
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