Condotel Financing & Non-Warrantable Condo
Are you looking for non-warrantable condo or condotel financing? Not all lenders are willing to finance condotels and non-warrantable condos. Non-warrantable condo or condotel financing is made available through wholesale portfolio lending.
What is a Condotel
Condotels are condominium units in a condo hotel. The management staff is often responsible for the unit’s upkeep and often charge a percentage of the rental income, but in some cases allow short term and long-term rental. They can be considered second home or investments properties.
Condotel Financing Availability
Chances are you called a lender and they may have said that they can finance a condotel. Often, it is not until they receive the appraisal, condo questionnaire or title documents that they fully understand that the condominium is in a condo hotel. The popularity of these type of units have been on the rise since the financial collapse of 2008.
In most cases, these units in the condo hotel cash flow positive and are attractive because of their income potential. They are also attractive because they can be a vacation spot and letting the management staff rent when not occupying.
When looking at condotel units as an investment opportunity, it is important to calculate the debt-service coverage ratio (DSCR). Calculating the DSCR will help with determining how profitable the unit can be. The DSCR equation is:
- Rent / (Principal and Interest (P&I) + Taxes + Insurance + Homeowner’s Association Dues (HOA)) = Debt-Service Ratio
No ratio options are available for units within a condo hotel, but this will help when choosing one unit over another. No income is required on an investment property.
Cash Out Condotel Financing
It is very common for investors to buy these units with cash because condotel financing is so hard to find. There are cash out options available with no seasoning requirements.
Down Payment for a Unit in a Condo Hotel
The minimum down payment is currently 20% – guidelines are always changing and a Loan Originator can help with determining down payment options. Pricing and down payment depends on the following criteria:
- Purchase price.
- Loan amount.
- Occupancy type.
- Credit score.
By furnishing this information, a Loan Originator can quote interest rates. They are even allowed to close in a Limited Liability Company or Corporation.
Non-Warrantable Condo Financing
Just like condotel financing, non-warrantable condo financing can be difficult to find because the guidelines do not meet Fannie Mae and Freddie Mac requirements. Every loan program requires certain characteristics that may disqualify the condo from certain types of financing.
It is important to work with a Loan Originator that has experience in non-warrantable and condotel financing to save time and money.