REAL ESTATE NEWS (Los Anglees, CA) — If you’ve had your eye on a loft condo in Los Angeles, you’ve probably encountered some complex and perhaps discouraging aspects of the loan process. Among the most pressing challenges is the surge in non-warrantable condos – a category of real estate that is giving even the most seasoned investors pause. Litigation, lawsuits and other issues have long been a hidden trap for live/work and loft conversions. Even Alta lofts, home of the Loft Blog, has had loan issues. This article aims to shed light on these significant issues, the potential pitfalls you could encounter, and the solutions available to overcome these hurdles.
The Emergence of Non-Warrantable Condos
Today, non-warrantable condos are becoming more prevalent in Los Angeles, and indeed, across California. A condo is deemed non-warrantable when it does not meet specific criteria established by Fannie Mae or Freddie Mac, the government-sponsored entities that back a majority of U.S. mortgages.
Among the common issues that can designate a condo as non-warrantable are:
Inadequate HOA master insurance: If the condo’s Homeowners Association (HOA) insurance doesn’t meet Fannie Mae’s requirements, you’re in non-warrantable territory. This could mean insufficient coverage or high deductibles, either of which can pose significant risks.
Construction defect litigation: If a lawsuit is currently in progress over construction defects (known as SB 800 claims in California), this could be a red flag that moves the property into the non-warrantable category.
Deferred maintenance and ongoing repairs/construction: A history of deferred maintenance can suggest problems with property management and could potentially lead to costly repairs down the line.
Special assessments for deferred maintenance: These are fees collected by the HOA to cover significant repairs or improvements that the regular budget cannot accommodate. Such assessments can signify financial instability or poor planning.
High single entity ownership: If a single entity (individual, investor, or corporation) owns more than 10% of the units in the condo project, it can be deemed non-warrantable.
These are just a few of the issues that can render a condo non-warrantable, but the list is expansive and constantly evolving.
High Renter Ratio: A high ratio of renters to owner-occupiers can raise concerns for lenders. If a substantial percentage of units in the condo development are rentals, it can be classified as non-warrantable. The worry here is that owners who rent their units might be less invested in the upkeep of common areas and the overall stability of the condo project.
Commercial Space in the Building: While mixed-use buildings with both residential and commercial spaces are common in urban areas, they can pose challenges for obtaining a condo loan. If commercial space makes up a significant portion of the building’s square footage, it can push the property into the non-warrantable category.
Concrete Flooring Deemed “No Flooring”: Concrete floors, often found in industrial-style loft condos, can be a sticking point with some lenders. Despite their aesthetic appeal and popularity, these floors might be classified as “no flooring,” putting the condo at risk of being deemed non-warrantable.
Bridging the Gap with Loft Loans
The rise in non-warrantable condos might seem like an insurmountable obstacle. Yet, for those with their hearts set on a loft condo, there is a way to navigate this complex landscape: working with a direct lender who specializes in loft loans and unwarrantable condo loans.
These lenders, like UC Loans, offer conventional 30-year fixed mortgages, with as little as 10% down, even for non-warrantable condos. Furthermore, they have the ability to close transactions quickly – a vital advantage in today’s fast-paced real estate market. They bridge the gap where non-Qualified Mortgage (non-QM) lenders can’t, providing an essential lifeline for your next non-warrantable condo transaction.
And there’s even more good news. Some of these lenders are leveraging the power of artificial intelligence (AI) to streamline their processes. Take, for example, the newly available AI-backed Home Equity Line Of Credit (HELOC) up to $400,000, designed explicitly for non-warrantable condos. This loan requires no appraisal, no hard credit pull, no escrow/title, and can close in as little as 5 days.
While the proliferation of non-warrantable condos can complicate your loft condo acquisition, it doesn’t have to be a deal-breaker. By working with a direct lender experienced in navigating the complexities of loft loans and litigation loans, you can still realize your dream of owning a unique and stylish loft condo in Los Angeles. Be prepared, stay informed, and don’t let non-warrantable status put a damper on your loft aspirations.
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Copyright © This free information provided courtesy L.A. Loft Blog with information provided by Corey Chambers, Broker DRE 01889449. We are not associated with the seller, homeowner’s association or developer. For more information, contact 213-880-9910 or visit LALoftBlog.com Licensed in California. All information provided is deemed reliable but is not guaranteed and should be independently verified. Text and photos created or modified by artificial intelligence. Properties subject to prior sale or rental. This is not a solicitation if buyer or seller is already under contract with another broker.