Non-Warrantable Condos in California Beyond SB 326: All the Reasons Fannie Mae Says No

I’m Michael DiVita — DRE #01372066 | NMLS #241655, DiVita Home Finance (DRE #01818285 | NMLS #323700), Tiburon, CA. I’ve been in California mortgage lending since 2000 and founded DiVita Home Finance in 2007. Call (800) 239-1103.

SB 326 gets most of the attention when buyers and agents talk about non-warrantable condos in California — and for good reason. But there are seven other reasons a California condo project can lose Fannie Mae eligibility, and they affect thousands of units across Los Angeles, San Francisco, San Diego, and the Bay Area every year. DiVita Home Finance closes non-warrantable condo loans through portfolio lenders for all of these scenarios — not just SB 326.

All the Reasons a California Condo Goes Non-Warrantable

The Litigation Problem: California’s Most Common Non-Warrantable Trigger

California’s construction defect litigation environment means thousands of condo projects are in active HOA litigation at any given time. When an HOA sues a developer, contractor, or insurance company — even for relatively minor issues — Fannie Mae classifies the project as ineligible for conventional financing. This makes every unit in that building non-warrantable for the duration of the lawsuit, regardless of the individual unit’s condition or the lawsuit’s merits.

Construction defect suits in California can last 3–8 years. Buyers who want to purchase a unit in a litigating project — or existing owners who want to refinance — cannot use conventional financing during that period. Portfolio non-warrantable lenders are the solution, and DiVita works with investors who have specific experience with HOA litigation scenarios and understand how to assess the risk.

Low Owner-Occupancy: The Airbnb Effect

Fannie Mae requires at least 51% of units in a condo project to be owner-occupied (with a special 35% threshold available under certain conditions). In California markets where short-term rental income has attracted investor buyers — particularly in tourist markets like Palm Springs, Tahoe, Santa Barbara, and coastal San Diego — investor concentration can push owner-occupancy below Fannie Mae’s threshold, making the entire project non-warrantable. If you’re buying in a condo complex where many neighbors are Airbnb operators rather than owner-occupants, confirm the project’s owner-occupancy ratio before assuming conventional financing is available.

Mixed-Use Condos: The Urban California Problem

San Francisco, Oakland, Los Angeles, and San Diego are full of mixed-use buildings — residential condos above ground-floor retail, restaurants, or offices. If the commercial component exceeds 35% of the project’s total floor area, Fannie Mae classifies the project as non-warrantable. This is particularly common in newly built mixed-use developments where significant retail or office space was included by design. Buyers in these buildings are automatically non-warrantable regardless of the individual unit’s characteristics.

Portfolio Lenders for Every Non-Warrantable Scenario

DiVita Home Finance works with non-warrantable condo portfolio investors for all of these scenarios — not just SB 326. Our investors have specific guidelines for litigation projects, low-occupancy projects, mixed-use buildings, and investor-concentrated developments. Rates typically run 0.25–0.75% above comparable conventional rates. Down payment requirements are typically 20–25%. The key is knowing which investor approves which scenario — and we’ve done this mapping across California’s most active non-warrantable markets.

Also see: SB 326 Condo Financing →

For all loan options and a full breakdown, see our Non-Warrantable Condo Mortgage California guide.