Seattle Condo Financing and Mortgage Rules

Why Condo Financing Is Different

Getting a mortgage on a condo is not the same as financing a single-family home. When you buy a condo, your lender is not just evaluating you. They are also evaluating the building. The HOA's financial health, the owner-occupancy ratio, insurance coverage, and litigation history all factor into whether a lender will approve your loan and on what terms.

Understanding these requirements before you start shopping will save you from falling in love with a unit in a building where financing is difficult or expensive.

Warrantable vs. Non-Warrantable Condos

The most important distinction in condo financing is whether a building is "warrantable." A warrantable condo meets the guidelines set by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that back most conventional mortgages. If a building is warrantable, you get access to standard mortgage rates and terms.

Warrantable Requirements (Fannie Mae Guidelines)

• At least 50% of units must be owner-occupied (for established projects)
• No single entity can own more than 20% of the units (10% for projects with 20+ units in some cases)
• No more than 15% of units can be 60+ days delinquent on HOA dues
• The HOA must carry adequate insurance coverage
• At least 10% of the HOA budget must be allocated to reserves
• No active or pending litigation that poses material financial risk
• The project must be complete (no active phases of construction for new developments)

What Happens If a Building Is Non-Warrantable?

If a building does not meet these guidelines, conventional financing is not available. Buyers have to look at alternative options:

• Portfolio loans: Some banks and credit unions will lend on non-warrantable condos using their own funds. Rates are typically 0.5% to 1.5% higher than conventional loans, and down payment requirements may be 20% to 25%.
• Jumbo loans: For higher-priced units, some jumbo lenders have more flexible condo guidelines.
• Cash purchases: If you can buy without financing, warrantability is not a factor for you. But it will affect your future buyer pool when you sell.

FHA-Approved Condos in Seattle

FHA loans allow buyers to purchase with as little as 3.5% down, but the building must be on the FHA-approved condo list. FHA approval requires:

• At least 50% owner-occupancy
• No single entity owning more than 10% of units
• Adequate insurance and reserves
• No more than 15% of units delinquent on dues
• The HOA must apply for and maintain FHA approval (it expires and must be renewed)

Not all Seattle condo buildings bother with FHA approval because it requires the HOA to go through a formal application process. Buildings without FHA approval are not necessarily problematic. They simply may not have pursued the certification. However, if you need FHA financing, your building options will be more limited.

VA Loans and Condos

VA loans for condos follow a similar model. The building must be on the VA-approved condo list. The VA maintains its own approval process and criteria. If you are a veteran considering a condo purchase in Seattle, confirm VA approval status early in your search.

What Lenders Look At: The Condo Questionnaire

During the mortgage process, your lender will require the HOA or its management company to complete a condo questionnaire. This document provides the lender with detailed information about the building, including:

• Owner-occupancy and rental ratios
• Concentration of ownership
• HOA budget and reserve fund balances
• Delinquency rates on HOA dues
• Insurance coverage details
• Pending or active litigation
• Any special assessments currently in effect

Delays or issues with the condo questionnaire can slow down your closing. Working with a lender experienced in Seattle condo transactions helps avoid surprises. The resale certificate contains much of this same information and is worth reviewing alongside the questionnaire.

Planning Your Financing Strategy

Before you start touring units, talk to a lender who understands Seattle's condo market. Not every loan officer deals with condo financing regularly, and the nuances matter. I work with several lenders who specialize in this space and can connect you with someone who will give you a clear picture of your options. Reach out if you need a recommendation, or start browsing Seattle condo buildings to see what is available.