What Makes a Property Non-Warrantable Due to Fire Insurance?

When a property is "not warrantable" due to fire insurance, it means that it doesn't meet the requirements of Fannie Mae or Freddie Mac for them to purchase the mortgage loan. This usually happens because of issues with the property's insurance coverage, specifically related to fire insurance.
Here's a breakdown of what that means and why it matters: 

 What Makes a Property Non-Warrantable Due to Fire Insurance? 

- Insufficient Coverage: The property may not have enough fire insurance coverage to meet the lender's requirements. This could be because the building is underinsured overall, or because there are specific gaps in the coverage.
 - High Deductibles: If the HOA or master policy has a very high deductible for fire damage, it could make it difficult to obtain financing. Lenders want to ensure that potential losses are adequately covered. 
 - Excluded Risks: The fire insurance policy may exclude certain types of fire damage or events that lenders consider essential. 
 - Non-Standard Policies: The insurance policy may be from a non-reputable or unapproved insurance provider, or it may have unusual terms that lenders find unacceptable.

Why Does it Matter?

Fannie Mae and Freddie Mac are government-sponsored enterprises that buy mortgages from lenders. They have specific guidelines that lenders must follow if they want to sell their loans to them. When a property is non-warrantable, it means the lender can't sell the mortgage to Fannie or Freddie, making it a riskier investment for them.   

What Happens if a Property is Non-Warrantable?

• Higher Interest Rates: Lenders may charge higher interest rates on loans for non-warrantable properties to compensate for the increased risk.   
• Larger Down Payment: You may be required to make a larger down payment to reduce the lender's risk.   
• Difficulty Obtaining a Loan: Some lenders may simply refuse to provide a loan for a non-warrantable property.   
• Limited Loan Options: You may have fewer loan options available, and you might not qualify for the most favorable loan terms.   

What Can You Do?

• Review the Insurance Policy: Carefully review the HOA's or master insurance policy to identify any potential issues.   
• Negotiate with the Seller: If possible, negotiate with the seller to address the insurance concerns.
• Seek Alternative Lenders: Look for lenders who specialize in financing non-warrantable properties.
• Consider a "Non-Warrantable Condo" Loan: Some lenders offer specific loan programs designed for condos that don't meet Fannie/Freddie guidelines.


If you're facing a situation where a property is deemed non-warrantable due to fire insurance, it's important to work closely with your realtor and lender to explore your options and find the best solution for your situation.

Thank you,
Zsuzsanna

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