Condos are one of the most common sources of last-minute deal collapses in the DMV market, and they're almost always preventable.
The problem isn't usually the buyer. It's the building. And by the time most agents find out a condo has an approval issue, they're three weeks into contract, the buyer has paid for an appraisal, and everyone's timeline is blown.
This guide is for agents who want to catch those issues before they write the offer.
What Is Warrantability?
"Warrantability" is the standard by which Fannie Mae and Freddie Mac determine whether they'll purchase a mortgage secured by a condo unit. If a condo project isn't warrantable, it cannot be financed with a conventional mortgage through standard channels.
This matters because conventional mortgages (Fannie/Freddie) represent the majority of purchase financing. A non-warrantable condo severely limits your buyer's options, and in many cases, makes financing impossible at standard rates.
FHA and VA have their own separate approval processes, which I'll cover below. They're not interchangeable with conventional approval.
Conventional Mortgages: Warrantability Requirements
For a condo to be warrantable under Fannie Mae / Freddie Mac guidelines, the project must meet all of the following:
Ownership Concentration
No single entity (including the developer) can own more than 10% of the total units in the project (25% for smaller projects with 5–20 units). If a developer is still holding 15 of 50 units, the project may not pass this test.
Owner-Occupancy
At least 50% of units must be owner-occupied or sold to buyers who intend to occupy. High investor concentration fails this test. This is particularly common in smaller boutique buildings and newer developments.
HOA Financial Health
The HOA must have:
- At least 10% of budgeted income allocated to reserves
- No delinquency exceeding 15% of dues (Fannie allows up to 15% of units delinquent)
- No pending litigation that would impair the project's value or viability
This is one of the biggest failure points. HOAs that are underfunded, have high delinquencies, or are in active litigation will fail the financial health test. And HOAs don't always volunteer this information.
Commercial Space
No more than 35% of the project's total square footage can be commercial/non-residential use. Mixed-use buildings in DC and urban Maryland frequently fail this threshold.
HOA Insurance
The project must carry adequate hazard and liability insurance. Fidelity bond coverage is required for larger HOAs. Gaps in coverage will surface during the title/insurance review.
Special Assessments
Active special assessments aren't automatically disqualifying, but they need to be reviewed. The assessment amount, payment structure, and reason all matter. A major structural repair assessment signals a different risk level than an aesthetic improvement.
The Project Review Process: Spot vs. Full Review
For conventional mortgages, there are two paths:
Limited Review (Spot Approval)
Used for owner-occupied purchases in established condo projects with 10+ units. The lender reviews the project at the unit/HOA level without a full project certification. Faster and simpler, but it still has conditions. Investment properties do NOT qualify for limited review.
Full Review (Condo Project Approval)
Required for investment properties, new construction, condotels, non-established projects, or projects that failed limited review. Full review involves comprehensive documentation: master insurance, HOA financials, budget, reserves, questionnaire, and project legal documents.
Ask your title company and the listing agent: Is this project on the Fannie Mae approved condo list? If yes, conventional financing is more straightforward. If not, your buyer's lender needs to conduct a review, and they need to start that process immediately upon going under contract.
FHA Condo Approval
FHA financing requires the condo project to be FHA-approved. FHA maintains a searchable database of approved projects (HUD Approved Condominiums). If the building isn't on the list, FHA financing is not available. Period.
FHA approval requirements are separate from conventional warrantability and are often stricter:
- 50% owner-occupancy requirement (same as conventional)
- No more than 10% of units owned by one entity
- HOA must carry FHA-acceptable insurance
- Litigation restrictions are stricter: any pending litigation related to the building's safety or structure is disqualifying
FHA Single Unit Approval (SUA) was introduced in 2019 to allow FHA financing on individual units in non-approved projects, under certain conditions. It's not universally available. The project still needs to meet eligibility criteria. Ask your lender whether SUA is an option before ruling out FHA on a non-approved building.
VA Condo Approval
VA has its own separate approved condo list, maintained by the VA. Similar to FHA: if the project isn't on the VA approval list, VA financing is not available without going through the VA approval process.
The VA approval process is notoriously slow. It can take 45–90 days. On a standard 30–45 day contract timeline, this is almost always fatal to the deal unless you know upfront.
VA-specific considerations:
- VA appraisers assess minimum property requirements (MPRs) in addition to value, and older condos with deferred maintenance can fail this review
- VA appraisers are assigned randomly and cannot be requested. If the appraiser doesn't know the DMV condo market, timeline and accuracy can be issues
- Condo association's right of first refusal clauses can conflict with VA guidelines. This is a common hidden issue in DC condo documents
The Most Common Failure Points, By Deal Type
| Issue | Impact | Loan Types Affected |
|---|---|---|
| Non-approved project | Can't finance at all (or severely limits options) | FHA, VA |
| Low owner-occupancy | Non-warrantable for conventional | Conventional |
| HOA delinquency > 15% | Non-warrantable | Conventional |
| Insufficient reserves | Non-warrantable | Conventional, FHA |
| Pending litigation | Likely non-warrantable or non-approvable | All |
| Developer concentration > 10% | Non-warrantable | Conventional |
| Right of first refusal clause | Conflicts with VA guidelines | VA |
| Commercial space > 35% | Non-warrantable | Conventional |
| Special assessment > threshold | Requires review, may kill deal | All |
What to Ask Before Writing an Offer
When your buyer is targeting a condo, ask the listing agent for the following before submitting an offer:
- Is the building FHA-approved? (Check HUD's website if the agent doesn't know)
- Is the building VA-approved? (If buyer is using VA)
- What is the current owner-occupancy rate?
- Are there any pending special assessments?
- Is there any active litigation involving the HOA?
- What is the HOA reserve balance and current delinquency rate?
- Is any single entity owning more than 10% of units?
The listing agent may not have all of these answers, but asking signals to everyone in the deal that you're professional and prepared. And any red flags that surface here save everyone time.
Condo Questionnaire: The HOA's Job
Most conventional lenders require a completed condo questionnaire filled out by the HOA. This is a standardized document requesting information about ownership concentration, occupancy rates, financials, insurance, and litigation.
Lenders typically charge a fee ($150–$400) for the review, and HOAs often charge a fee ($200–$500) to respond. These are typically paid by the buyer or built into closing costs.
Timeline: The HOA has no obligation to respond quickly. A non-responsive HOA can be a deal-killer in tight timeframes. This is another argument for starting the condo review process the day you go under contract, not at week three.
Non-Warrantable Condo Financing: What Exists
If a condo doesn't qualify for conventional, FHA, or VA financing, options exist, but they're limited:
- Portfolio loans: Lenders holding loans in their own portfolio (not selling to Fannie/Freddie) may have more flexibility. Expect higher rates (0.5%–1.5% above market) and stricter reserve requirements.
- Non-QM loans: Broader guidelines, higher rates. Not appropriate for most first-time buyers.
- Larger down payment: Some lenders will approve non-warrantable condos with 20–25% down under portfolio terms.
These aren't bad options. They're just not the primary market, and buyers need to understand the rate and term implications before committing.
The condo approval process is one of the most technically complex parts of residential mortgage lending. The information exists (HOA financials, approval status, ownership data) but it's scattered and rarely volunteered.
Agents who know to ask the right questions early protect their clients, their timelines, and their commissions. Agents who wait until underwriting discovers a problem lose all three.
Putting a buyer under contract on a condo?
If you have any doubt about approval status, a 20-minute conversation can save a 30-day transaction. Let's talk before the offer goes in.