Non-Warrantable… WHAT?

In this episode, we’re joined by Brandon Sparks from Nautilus Lending to discuss non-warrantable condos and different portfolio niche lending products. Brandon, who has over 20 years of lending experience across Texas, Tennessee, and Florida, dives into the complexities and nuances of condo lending. He also elaborates on how his team handles traditional FHA approved condos, VA approved condos, and non-warrantable condos. Brandon explains the risks and challenges associated with non-warrantable condos and provides insights into how to navigate the process for a smooth transaction. Tune in if you’re a real estate agent, buyer, or seller interested in a deep-diving conversation about various loan types and programs in the market today.

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Guest Contact Information:

Brandon Sparks
Nautilus Lending
Brandon@Nautilus-Lending.com
512-796-4569
Brandon Sparks NMLS #273376
Nautilus Lending NMLS 1660690

Robbie English (Host, The REALTEA with Robbie English) 0:00
Hey y’all today we are talking about non warrantable and non warrantable condos and everything on warrantable. Really, I have branded Sparks is not a list Lindy and Brandon has done deals for me in the past. And he’s got over 20 years of lending experience. And y’all know me, I’m pretty detailed when it comes to lenders. He lives in Texas, Tennessee, and in Florida. He graduated magna cum laude from St. Edward’s. I mean, hello, he’s smart, too. Brenton does traditional lending and just about every kind of loan type out there. But he also is the perfect guest for today’s episode, because he’s brilliant with those portfolio niche lending products that fit that out of the box type of financing, such as non warrantable condos, and we’ve got a lot of those out there and sitting around and not every lender can handle those Brandon Kane. So thanks, Brandon, for joining us.

Brandon Sparks, Mortgage Loan Officer 0:59
Oh, thank you so much, Robbie, I’m this is an honor to be a part of this today. Thank you, we’re

Robbie English (Host, The REALTEA with Robbie English) 1:03
glad because one of the things that I have learned teaching condominium classes, as well as doing deals with other agents is they don’t know what the heck a non warrantable condo is, or why I need a financing letter from a lender who can do an unwarrantable because they’ll show up with a regular traditional Fannie Mae write the approval letter and unlike, you know, that ain’t gonna work.

Brandon Sparks, Mortgage Loan Officer 1:29
Exactly. Let me give you a semi technical answer in terms of what this is what not workable is. Okay? So this comes from your traditional lending on a property in terms of underwriting. So we’re talking about traditional mortgages, which would be your Fannie or Freddie. All right, okay. And Fannie and Freddie, for those of you who don’t know, they’re massive clearing houses for lenders that are in the business of making loans, and then selling them off of our books to complete the lifecycle of the mortgage process. Secondary market, right, for secondary markets. Exactly. So we underwrite the borrowers, but we also underwrite the property, which is that collateral for the loan. So this allows us to sell the mortgage to that secondary market, as you mentioned, as an investment, right, this mortgage that people are taking on the property, it’s a bond investment, after we close the loan, the mortgage rate that consumer gets in a loan program that we can provide, those are influenced by various types of perceived risks. Okay, so condo represents a slightly higher perceived risk than a single family. And that’s just because of how that development structure was laid out condos are often very similar to each other within a project in terms of the physical layout is mixed between the walls, the ceiling on the floors. And additionally, the HOA rules of that community will play a big role in how the performance how those duties are, are upheld in the community. And that can affect those condos, financially and the ability to maintain them in the spaces around the property. That’s common elements. So eventually, Robin that will influence how the resale goes. That’s the technical answer. So condos do fall within underwriting purview of warrantable versus not warrant condos can be mainly your attached condos, those two to four units, the towers, you can even have detached condos that have aspects about them, like land condos, structures, but we underwrite about 30 aspects of the condo project, we gather that information about the project from the HOA on a condo questionnaire, and that’s why it’s usually completed by the HOA most of the time. And if one of those 30 some odd aspects fails to fit within Fannie or Freddie his risk standards for the underwriting or just seeing standards, that buying investor will not purchase the loan.

Robbie English (Host, The REALTEA with Robbie English) 3:57
Can you give us an example that you might commonly see? Yeah,

Brandon Sparks, Mortgage Loan Officer 4:01
one that we’re experiencing right now is structural litigation. Okay, there’s a particular project in town. There’s litigation on a common element. It’s a big deal. They’re close to settling. They’ve been working on it for quite some time and most lenders out there across all of Texas, at least, will shake in their boots over. Yeah, what’s a pretty big deal for us when we close your loan, we need that secondary investor 100% on board? Well, in a sense, right, because if they won’t legally represent and warranty, the purchase, or in layman’s terms give us the necessary assurances that loan purchase will consummate, which is what we need, then a lender gets stuck with that loan on their books and many of the big banks and mortgage lenders or brokers simply do not have the ability to keep these loans on their books for the 10 year 1520 2530 year term. So this is why many of these lenders who live and die on selling loans to these secondary markets, they just will not make these loans is that

Robbie English (Host, The REALTEA with Robbie English) 5:03
what we traditionally hear called a portfolio loan, it is one they hold within their,

Brandon Sparks, Mortgage Loan Officer 5:08
within the portfolio of the institution. That is correct. You and I originally

Robbie English (Host, The REALTEA with Robbie English) 5:12
met on a condominium complex dealing with the financing, which was a hotel and the developers went in and converted them to condominiums. Right, I had a buyer that just absolutely would not listen to reason. And on his second deal in there, we were able to contact you because he had a mortgage person he wanted to go through and she said, Oh, yeah, I can do it. Oh, yeah, I can do it. And she couldn’t, and paddle Listen, the reason that it cost him and you jumped in, and we’re able to get that deal done. And is there an easy, identifiable thing that helps us as real estate agents to say, hey, that’s an unwarrantable. I need to call Brant, I

Brandon Sparks, Mortgage Loan Officer 5:54
would love to say that there is an easy way you can easily often recognize it without hearing about the failed attempts to find it’s the property from any other agents reach away or the property seller, I would say you need a specialist who has the experience with just the nuances of condo lending in general. Okay, and you need that accurate condo questionnaire produced by the HOA for us to review and confirm whether or not the property is walkable, because you got to remember these things can happen. You can have a property go in and out of warranty ability. And there’s no real bell that rings to let you know that’s the case. So if I were looking at a condo as a buyer agents, and I’m not an agent, I’m just thinking right, putting myself in those shoes, the first thing I would do is reach out, hey, Brandon, let’s talk about the financing terms and expectations. For this process in the event, you come across the right property that might become a non portable property. And now if I was listing the property, I would encourage the seller to spend the money in advance to complete a condo questionnaire and then reach out to us to review it and ensure that property is in the right status. And of course, we can give you the forms in advance. Because

Robbie English (Host, The REALTEA with Robbie English) 7:05
when it falls out, it’s late and frustrating to have to deal with trying to get lending a second time. It does get very frustrating. Yeah, good advice there to reach out, especially when you’re doing that listing upfront. No,

Brandon Sparks, Mortgage Loan Officer 7:20
I agree less than you want, you know, in this experience that we provide, which is rooted in good customer service is to have something come in and get deal fatigue and create that deal fatigue early. And that’s commonly we’re coming in as a lifeboat type of thing. Why would I,

Robbie English (Host, The REALTEA with Robbie English) 7:40
as a real estate agent need someone who specializes in a non warrantable type property instead of just the traditional one? Why do I need someone that specializes in that?

Brandon Sparks, Mortgage Loan Officer 7:50
I think the last thing you want to experience is getting weeks into a contract and the lending process and then finding out that underwriters willing to prohibit property for that particular loan or getting an appraisal, spending all that money and wasting your time charging up the emotions. I mentioned the old fatigue, it’s for everybody involved. It’s like being on an airplane and you feel real big turbulence and you’re really worried is going to come down. We don’t want that experience for the client. So if you do have a client who is interested in the condo, I just think you need to have that expert who can handle traditional condos, FHA approved condos, VA approved condos, non warrantable condos, it’s important to note that conventional VA, FHA, all of these and also non warrantable St. Curie, very different underwriting requirements, and I’m talking about vastly different in terms of not just what we qualify, but the mortgage rates and the loan terms. So over the last 20 years, we’ve really fostered this niche for about 17 of those 20 years. So we’ve got the experience to easily fund any of them. We have loan products for all of them. And this will provide you and your clients with that security, that confidence no matter what we can get that transaction close with the best terms were legally possible. That’s the key here. That’s the key.

Robbie English (Host, The REALTEA with Robbie English) 9:07
Yeah, you mentioned warrantable LIS FHA, I know has one and Ray has one that it seems like those lists are shrinking. It doesn’t seem like a lot of complexes are renewing those. And so it there’s a bigger need and one of the things we’re in a college town of course, and we’ve got a lot of those condominiums that are out of whack with that owner to renter, Rhian percentage, and they have their own challenges in there. Exactly.

Brandon Sparks, Mortgage Loan Officer 9:38
Yeah. And like you said before, there’s not just one what makes it all work? There’s not just one there could be a whole slew of things that you know that that pop up, right, like occupancy percentages. That depends on whether the condo was established, or is it a new condo, all of these little nuances will play in it. You said there were like 30 Have them the job look at see if earning 40 of those on the checklist.

Robbie English (Host, The REALTEA with Robbie English) 10:04
Are there any special considerations or potential changes that borrowers should really be aware of when seeking some type of non warrantable? Financing?

Brandon Sparks, Mortgage Loan Officer 10:13
Sure, I would make sure that we fully discussed the details as early as possible. And like prior even to making the offer, this is just a good standard in any transaction, having good communication with the buyer and the seller side, right, setting these expectations early, that makes the experience a win win for everybody on any condo transaction, the loan terms will depend on the issue with that project. So these are issues that I can discuss and actually socialize is the term I use with the investor. Yeah, so means that your traditional 30 Day closing may not be possible, right? Not the 40 day close or 45 Day close. And so we’ll need to negotiate maybe for a little more time. But that’s always better to do early and get everybody on the same page with good communication, that tends to calm the nerves out getting those details and having that solid loan application in hand with those details about our borrower, that’s gonna be a big deal. And I want to make this note, because you’d mentioned portfolio, and I want to say this, so these loans aren’t going to be sold most of the time, they’re not sold. Alright, so the master needs to feel comfortable with the perceived risks. And because they’re going to keep that loan on their books for the life of the loan, and you cannot assume that a buyer will qualify for this type of loan just because they qualify for some other traditional mortgage with those debt ratios. We might require higher down payments, we might have a shorter loan term, we might have higher closing costs for these purchases, or refinances. It’s really important that we discuss these things very early in, so that we’re setting those expectations.

Robbie English (Host, The REALTEA with Robbie English) 11:54
Those are awesome points. Because that really can affect what someone is looking to do when they fall in love with that complex. If you haven’t gone and worked with a lender that can do non warrantable as well. You have to be able to flip and pivot and adjust everything. Absolutely. What other loan types or programs would I want to consider directing your way and I always try to get someone not to do the huge national banks or anything like that, because everybody likes someone who’s gonna pick up the phone and forehand and picks up the phone. Yes,

Brandon Sparks, Mortgage Loan Officer 12:28
sir. Absolutely. Or text? And where are we? A dad? Have you had a 10 year old girl? So we’re on the weekends where we are spending family time, it’s soft, and I’m still text and saying, Hey, let me get back with you in a couple hours. And we understand how real estate works. Inquire sometimes when working holidays and weekends. And we’re passionate about this. We’ve done this a long time. So absolutely. But to answer your question, and I really appreciate this so much Robin to be able to talk about the other stuff that we’re doing, it’s extremely common that we get brought into the same day with no warrant blending. And that’s after it’s already started with another lender. But as much as we love coming in as the Navy Seals of lending to get these deals done, the reality is positioned our branch to deliver fun in all the loan categories. So we hope to earn your business with this kind of education with this type of education for the clients and great communication supporting you, the buyer and or the seller right within experience. Because we are advocates for this transaction, right, we want to smooth transaction where we close the deal. And we hope that referral partner can see that and consider us for regular traditional loans. So we’ll keep it simple, understandable, will work to get you guys the best terms that are available in the entire market. So just some examples. We do low down payments for first time homebuyers. So three to three and a half percent down. You guys have heard of FHA loans. We do though, right? We can also do 100% financing. So that’s great. For those first time buyers, we’re doing those, we’re doing this for veterans, there are certain rural properties that we can do zero down. We love seasoned investors. So we have special lending programs for self employed borrowers who have aggressive tax strategies with write offs, right. So we do a ton of Realtors loans, I’ve taught that we had six in the last 45 days of that that’s very common. commercial lending for all types multifamily apartment lending is available land loans, lot loans, construction loans, and even construction to permanent loan so we can close in two times we can close on one time. In fact, just so you know when I started 20 years ago, my first niche was in construction lending and where I began everything before then all walkability was a thing. So yeah, we’re a full service shop. So, Brandon,

Robbie English (Host, The REALTEA with Robbie English) 14:43
if somebody wants to reach out to you, how is the best way that they can contact you?

Brandon Sparks, Mortgage Loan Officer 14:50
I think the best way is to reach out two ways. First way would be Brandon at Nautilus dash lending.com That’s our email, what we will do is we will set up a strategy call, because I think it’s all about taking information, listening to the client’s needs, taking notes, and sharing information about the market and the loan product and the process. So it always begins there. You can also text me at 512-796-4569. Again, that funnel is going to lead you directly to getting into the calendar where we can both sit down, we can zoom, we can make a phone call, I can talk to you about your financing needs, your goals and help you work through all of that information. And then from there, we go to Application and I build a step by step process in a very simple, easy to understand way.

Robbie English (Host, The REALTEA with Robbie English) 15:39
That’s awesome. And Brandon’s contact information, in case you missed, it is going to be in the show notes below. And thank you, Brandon, this thing’s gonna help a lot of people. I’m glad that you took the time to join us. I appreciate it.

Brandon Sparks, Mortgage Loan Officer 15:53
I’m honored. Thank you so much. I really appreciate it.

Robbie English (Host, The REALTEA with Robbie English) 15:56
Thank you. Thank you for tuning in to this episode. We’re dropping a new episode every Sunday at 12 noon central. We’d love your support for the real tea with Robbie English (Host, The REALTEA with Robbie English). Please do us a favor and leave us a review on Apple podcasts. It only takes a couple of seconds and it really does help us out. Also, be sure to share it with your colleagues and friends. Until next time, we hope you have a profitable and productive week.