The Washington DC Condo Guide Part III
What you need to know before you buy: Condo Financing | Part III Of A Five-Part Series
🧰 This is Part III of my five-part series on Washington DC condos. Part III delves into condo financing options, condops and condotels, what makes a condominium “unwarrantable”, how association litigation can torpedo a condo loan, and 2025 conforming loan limits for the District of Columbia.
This article was originally published as part of my 🛠️Tools series at realestateinthedistrict.com. It’s been updated and expanded here on my Substack, DC Real Estate Channel.
You can find links for the full series archive at the bottom of each post.
Part III: Condominium Financing
What Are The Options? Tell Me In 20 Seconds.
Washington DC condominiums can be financed with the same types of loans used for single family properties;
Conventional mortgage loans: Conforming (matches underwriting guidelines set by GSEs Fannie Mae and Freddie Mac) loans offered by private lenders;
FHA loans: Mortgage loans insured by the Federal Housing Administration (FHA)*
VA loans: Mortgage loans guaranteed by the Department of Veterans Affairs (VA). These loans are offered at zero downpayment, with specific provisions designed to help eligible veterans, service members, and surviving spouses purchase, build, or refinance homes*
USDA loans: Subject to rural area eligibility, condominium project and borrower eligibility
Assumable mortgage loans: Subject to existing loan type and seller offerings
Seller Financing: Offered by individual sellers
*Condominiums must meet certain criteria to be FHA and VA approved. Many DC condominiums qualify for these lending programs. Your lender should have a current list of qualifying DC condos.
Want more detail? Use this LLM prompt:
As a residential mortgage expert in the District of Columbia, list the specifics of ____________ (mortgage type), including qualifying criteria for borrowers and GSE underwriting guidelines.
What Are Condops And Condotels?
Though a rarity, condops do exist in the District of Columbia. Here’s what you need to know:
Condop: A hybrid of condo and co-op that typically (but not always) includes commercial spaces (defined as the condo units) such as ground floor retail or arts spaces + residential housing (co-op units) on upper floors. This type of mixed-use building results when one association governs two types of use and the commercial use square footage exceeds GSE underwriting guidelines. Residential owners have shares in the co-op corporation, which holds title to the residential portion of the building and governs its property. Commercial units are independently owned and operated. The residential co-op board has no jurisdiction over this portion of the property or their owners;
Condotel: A condominium building operated as a hotel, allowing short term rentals by individual unit owners. This type of hybrid would be subject to both short term rental restrictions + hotel guidelines in the District of Columbia.
Zuzu Notes:
Amenities + staff = higher dues
Some amenities, like fitness rooms, elevators and parking are desirable and contribute to higher resale values, but those condominiums with extensive amenity lists tend to have prohibitively high association dues, especially as the buildings age.
What Is ‘Warrantability’ And How Does It Affect DC Condos?
Warrantable vs. Non-Warrantable Condos
Warrantable condos are those able to be financed with conventional loans. They meet Fannie Mae and Freddie Mac requirements regarding owner occupancy (renter vs owner occupancy ratio), financial health of the association, and percentage of commercial space (portion of restaurant, retail or office space that is part of the same association as the residential housing portion).
Warrantable condominiums are eligible for conventional loans that offer favorable terms such as lower interest rates and down payment requirements as compared to loans for unwarrantable condos.
Non-warrantable condos don't meet GSE standards, which makes them difficult to finance through traditional methods. Special loan programs for non-warrantable condos can carry less favorable loan terms. In some circumstances, cash is the only payment option available.
Warrantability is a tricky part of evaluating condominiums because the information needed to discern whether or not financing will be an issue is not readily available to buyers. Why? There is a procedural gatekeeper. Warrantability information for the association is requested in the form of a ‘condo questionnaire’ sent to the association by the buyer’s lender—after the property is already under contract. Associations often charge a fee for completion of this form, which is returned to the lender, not the borrower. Additional information is found in the condominium resale certificate package (aka ‘condo docs’) which are typically not directly available to buyers. The resale package is ordered and paid for (usually hundreds of dollars) by the seller, once the property is under contract. The regulations on timing for delivery are often in conflict with the timing of contract contingencies. All of this puts condo buyers at a disadvantage, requiring them to contract on condo properties and initiate loans without full understanding of the property’s warrantability.
Here's the general criteria for warrantability:
✅ Occupancy:
A significant portion of units must be owner-occupied primary or secondary residences, not investor-owned rental properties. FNMA typically requires at least 50% owner-occupancy, and FHLMC requirements are similar.
✅ Association Financial Stability:
Financial reserves must be sufficient to cover future repairs and maintenance. A reserve fund of at least 10% of the annual budget is typically required.
✅ Delinquency Rates:
Fannie Mae limits delinquencies on association dues payments. There can be no more than 15% of units 60 days or more past due on condominium dues. Freddie Mac has more stringent requirements. No more than 15% of units can be delinquent on dues for 30+ days, and no more than 15% of units can be delinquent 60+ days on each special assessment.
✅ Litigation:
There should be no pending lawsuits against or involving the association or the project’s developer that relate to the property's structural integrity, safety, or other significant issues. Litigation can derail a mortgage loan and result in a denial.
In 2010, when many lawsuits were brought against developers following the building boom of the 2000’s, I created and implemented a contract provision that protects buyers from losing earnest money deposits due to the seller’s failure to disclose or ignorance of pending litigation involving the association and developer. This simple, one-line provision has saved more than one buyer from a battle over EMD when no contract contingency existed for financing or appraisal: “Subject to condominium meeting GSE warrantability guidelines.” While it has been questioned often by listing agents, it has never been excluded.
✅ Percentage Of Commercial Space:
Both GSEs limit commercial or non-residential space in a condominium project to 35% of the total of the building’s or full project’s above + below grade square footage in order to be considered warrantable. Calculations for this rule consider the total square footage of the project + the square footage dedicated to commercial or non-residential space.
✅ Short Term Rentals:
Fannie Mae’s underwriting guidelines say:
Even though any STR unit lease will be classified as ‘commercial,’ the property is still residential in nature (not operated as a hotel, condotel, or other single room occupancy arrangement). This mention includes references to ‘space and income limitations per Form 4660,’ which is part of the Fannie Mae Multifamily Guide. It outlines underwriting requirements for space and income limitations for multifamily properties. Limitations aren’t explicit, but the guide references them within the context of underwriting aspects like debt service coverage ratio (DSCR), loan-to-value (LTV) ratio, and interest rate tests. Specifically, the guide indicates that these limitations apply when determining the maximum allowable loan amount and other financial parameters.
No more than 5% of the Property’s units are available for STR
There’s also a list of required questions FNMA requires borrowers to answer if STRs are a part of the equation, including; Borrower's action plan for handling liability issues for STR tenants at the Property, Safety concerns for non-STR tenants; Length of time the STR has been in place; Borrower's or master tenant’s insurance coverage for STR, whether or not the STR units are furnished or unfurnished; and confirmation that the STR is legally permissible and in compliance with applicable laws and zoning.
So STRs complicate things and this is just one of the reasons most condominium associations in the District of Columbia prohibit them.
✅ Single Entity Ownership:
Both GSEs have restrictions on single entity ownership of units in a condominium.
Single-entity ownership means an individual, investor group, partnership, or corporation owns more than the following total number of units in the project:
Fannie Mae underwriting guidelines impose limits on:
Projects with 5-20 units - To 2 units
Projects with 21+ units - To 20%
Units currently subject to any rental or lease arrangement must be included in the calculation. This includes lease arrangements containing provisions for the future purchase of units such as lease-purchase and rent-to-own arrangements.
Exclusions from the single-entity ownership calculation include:
Units owned by the project sponsor or developer which are vacant and being actively marketed for sale (new construction)
Units controlled or owned by a non-profit entity for the purpose of providing affordable housing, and units held in affordable housing programs (including units subject to non-eviction rent regulation codes), or units held by higher-education institutions for a workforce housing program
The single-entity ownership requirement may be waived when the transaction is a purchase transaction that will result in a reduction of the single-entity ownership concentration. Then, the following requirements must be met:
Units owned by the single entity represent no more than 49% of the units;
Evidence is required that the single entity is marketing units for sale to further reduce single-entity ownership, with the goal of reducing the concentration to 20% or less of the project units;
The single entity is current on all dues and other assessments; and
There are no pending or active special assessments in the project.
✅ Project Completion:
The condominium project should be completed, and the association controlled by unit owners.
For a condo project to be deemed "warrantable" by Fannie Mae and Freddie Mac, it needs to be ‘substantially complete.’ That means means the common elements are finished and the units are completed, except for buyer preference selections. More detail on this:
1. Legal Phase Or Building:
Subject legal phase or building: The specific legal phase or building containing the unit being financed, as well as any preceding legal phases where units have been offered for sale, must be "substantially complete".
Legal phases: Legal phases are defined by the project's official documents, not developer construction or marketing phases.
Buyer selection items: Typical buyer selection items (appliances, flooring, etc.) are generally not required to be installed, but any choices involving modifications to the unit floor plan must be completed.
2. Established Projects:
Established projects must be 100% complete and at least 90% of the units must have been conveyed to buyers.. There are exceptions for projects where the developer retains units for rent, provided construction is complete, no further phasing is planned, and the developer's rental share does not exceed 20%.
Read the full Fannie Mae and Freddie Mac guidelines for project completion.
2025 Conforming Loan Limits
The conforming loan limit is the maximum amount a homebuyer can borrow with a mortgage. The 2025 limit for the District of Columbia is 150% of the baseline limit of $806,500 for a single-family home. or $1,209,750.
The conforming loan limits for multifamily are:
2 units: $1,032,650
3 units: $1,248,150
4 units: $1,551,250
The Federal Housing Finance Agency (FHFA) sets conforming loan limits, which are based on home prices across the country.
Part IV Preview:
In the fourth part of this series, we’ll discuss Resale Certificate Packages (“Condo Docs”) for District of Columbia condominiums.
📬 Want personal guidance or have questions about multifamily home types in the District? Reply here or schedule a consult. I’ll help you decode it all!
🧠 Series Archive
The Washington DC Condominium Guide
An in-depth series for Washington DC buyers navigating condo purchases.
📚 Parts 1 - 5
👉 Part 1: Condo Basics
What is a condominium? How does condo ownership work? Why buy a DC condo?
👉 Part 2: What Does The Monthly Fee Cover?
Does the monthly association fee seem high? What does it cover, exactly? What’s a Capital Contribution? Breaking down the monthly cost of condominium ownership.
👉 Part 3: Financing a DC Condo
Learn about condo financing options, what conditions make financing difficult or impossible and Zuzu’s little contract clause that protects buyers’ earnest money deposits if a building is unwarrantable.
👉 Part 4: Condo Resale Certificate Packages
What are ‘condo docs’? Learn what should be included, what to review and the importance of buyer due diligence. DC’s right-of-rescission explained, the DC Condo Act outlined + legislative updates and links.
👉 Part 5: Condo Q&A
Answers to common questions about purchasing a Washington DC condominium.
🧰 This post is part of a multi-part series originally published as a long-form article in the Tools section of my website, realestateinthedistrict.com.
Each post is being updated for this Substack channel, and optimized for clarity and readability.
The original long-form Tools pages will remain on my website for reference purposes until July 23, 2025.
Disclaimer:
We are not attorneys, legal experts or CPAs. The information presented on this channel is derived from reliable sources, but should not be considered legal, financial or investment advice. Susan Isaacs and Compass, their principals and/or representatives, do not guarantee or warrant its accuracy, completeness, or applicability to any specific transaction. Homebuyers should read applicable D.C. law and code themselves as part of their due diligence, and seek help from licensed, qualified professionals for interpretation and application to their specific transaction.