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.
California Senate Bill 326 changed the condo financing landscape — and most buyers don’t know it until they’re already in escrow. If you’re buying a condo in California and the HOA has unresolved SB 326 inspection issues, deferred maintenance flags, or a failed deck/balcony inspection, you may find that your lender — or even non-warrantable condo lenders — won’t approve the loan. At DiVita Home Finance, we work with specific investors who understand SB 326 and will lend when most lenders won’t. Here’s what you need to know.
What Is California SB 326?
Senate Bill 326, signed into law in 2020, requires HOAs with three or more attached units to inspect all exterior elevated elements (EEEs) — balconies, decks, stairways, elevated walkways, and their associated waterproofing systems — by January 1, 2025, and every nine years thereafter. The law was prompted by the 2015 Berkeley balcony collapse that killed six students, and it represents the strictest balcony inspection mandate in the country.
The inspection must be conducted by a licensed structural engineer or architect. If the report finds conditions that pose an immediate threat to health and safety, the HOA must take immediate action. If significant deferred maintenance is found, the HOA must develop a repair plan and fund it through a special assessment or reserves.
How SB 326 Affects Condo Financing
In 2022, Fannie Mae and Freddie Mac introduced sweeping new condo project review requirements in response to the Champlain Towers South collapse in Surfside, Florida. These requirements — known as the significant deferred maintenance (SDM) and special assessment guidelines — directly intersect with SB 326 inspection results.
When SB 326 Makes a Condo Non-Warrantable
| Condition | Fannie Mae / Freddie Mac Eligibility | What It Means for Buyers |
|---|---|---|
| HOA has not completed SB 326 inspection (required by 1/1/2025) | ❌ Project ineligible | Conventional loan denied at project review |
| Inspection found significant structural/safety deficiencies — repairs not yet completed | ❌ Project ineligible until repaired | No conventional financing; need portfolio lender |
| HOA issued a special assessment for SB 326 repairs that is outstanding | ❌ Likely ineligible depending on amount | Lender will request special assessment docs |
| HOA has deferred maintenance flagged — repair plan in place but work not started | ⚠️ Gray area — depends on severity | Some lenders approve with conditions; others decline |
| Inspection completed, all EEEs rated in good condition, no deficiencies | ✅ Eligible — proceed normally | Standard conventional financing available |
Not All Non-Warrantable Condo Lenders Will Help
This is the part that surprises buyers — and even some real estate agents. When a conventional loan falls through due to SB 326, the natural next step is “we’ll just use a non-warrantable condo lender.” But most non-warrantable condo lenders have their own restrictions on SB 326 — particularly when there are open safety findings, incomplete repairs, or litigation between the HOA and contractors.
Common non-warrantable condo lender restrictions on SB 326 situations: will not lend if engineer’s report found any EEEs requiring immediate repair; will not lend if HOA has active litigation related to structural defects; will not lend if HOA has a special assessment outstanding above a certain dollar threshold. DiVita Home Finance has mapped which specific investors will approve which SB 326 scenarios. We know which investors to call before we send the file — not after a denial.
Financing Options When SB 326 Is an Issue
Portfolio Non-Warrantable Condo Loans (Select Investors)
For owner-occupied and second home purchases, our network of portfolio investors includes lenders who will review SB 326 findings on a case-by-case basis. They typically require: the full SB 326 engineer’s report, the HOA’s repair timeline and budget, confirmation that life-safety issues are addressed, and minimum 20% down payment. Rates on portfolio non-warrantable condo loans run approximately 0.25–0.75% above comparable conforming rates.
DSCR Loans for Investment Condo Units with SB 326 Issues
If you’re purchasing an investment condo — or a unit you’ll rent out — DSCR loans are often the most flexible path on SB 326-affected projects. We work with DSCR investors who have specifically pre-approved certain California condo projects despite open SB 326 issues, as long as the HOA has an active repair plan and no outstanding life-safety restrictions.
Bank Statement Loans for Self-Employed Buyers
Self-employed buyers purchasing a condo with SB 326 issues face a double challenge: they need both a non-warrantable project approval AND non-traditional income documentation. Several of our investors offer bank statement loan programs on non-warrantable condos, allowing self-employed buyers to qualify on bank deposits rather than tax returns at the same time the project is reviewed under relaxed SB 326 criteria.
Which California Markets Are Most Affected by SB 326?
| Market | SB 326 Risk Level | Notes |
|---|---|---|
| San Francisco / SF Peninsula | High | Large volume of pre-1990 condo stock; high-rise and mid-rise with extensive EEE exposure |
| Los Angeles (Hollywood, Koreatown, West LA, Wilshire) | High | Mid-century condo stock with significant waterproofing and deck issues common |
| San Diego (Mission Hills, North Park, Hillcrest, Coronado) | High | High HOA project count; salt air accelerates balcony deterioration |
| Oakland / East Bay | High | Large inventory of older attached housing; some HOAs delayed inspections past deadline |
| Sacramento / Midtown | Moderate | Smaller condo market; many HOAs completed inspections without major findings |
| Orange County | Moderate | Mix of newer and older inventory; newer projects less likely to have findings |
| Palm Springs / Coachella Valley | Moderate | Condo-hotel and resort communities; UV and heat accelerate deck surface deterioration |
| Marin County | Moderate | Limited condo inventory; projects tend to be well-managed but inspection may reveal issues in older stock |
What to Do If Your Condo Has an SB 326 Issue
Step 1: Get the SB 326 report before you’re in escrow. Ask the listing agent or HOA for the SB 326 inspection report before you make an offer. This is a public document under Civil Code §5551 — the HOA must provide it upon request.
Step 2: Call a broker who knows which investors approve the project. Don’t start with your bank or a retail lender. Start with a broker who has already mapped the specific project to approved investors.
Step 3: Understand the repair timeline. The most important factor after the severity of findings is the HOA’s repair plan — is there a funded plan, a contractor hired, and a completion timeline?
Step 4: Account for the rate premium. Non-warrantable condo loans carry a rate premium over conventional — typically 0.25–0.75%. Factor this into your offer calculations.
SB 326 Condo Financing FAQ
What is SB 326 and why does it affect my mortgage?
California SB 326 requires HOAs to inspect exterior elevated elements (balconies, decks, stairways, elevated walkways) by January 1, 2025 and every 9 years after. If the inspection found deficiencies — especially structural or safety issues — Fannie Mae and Freddie Mac will not approve a mortgage on a unit in that project until the issues are resolved. This forces buyers to use portfolio or non-QM lenders, not all of whom will approve the project either.
Will a non-warrantable condo lender automatically approve a project with SB 326 issues?
No — this is a critical misconception. Most non-warrantable condo lenders have their own restrictions on SB 326 findings. Properties with open safety deficiencies, active litigation, or outstanding special assessments above threshold amounts are declined by many non-warrantable lenders just as they are by conventional lenders. DiVita works with the specific investors who have reviewed and approved California condo projects with open SB 326 findings.
Can I get a DSCR loan on a condo with SB 326 issues for an investment property?
Yes, in many cases. We work with DSCR investors who will lend on California condo investment units in projects with open SB 326 findings, provided the HOA has an active repair plan and no outstanding life-safety restrictions. The DSCR loan qualifies on rental income rather than personal income, which simplifies the borrower side of the equation.
What happens if the HOA never did its SB 326 inspection?
Fannie Mae and Freddie Mac require disclosure of whether the SB 326 inspection has been completed. If the HOA cannot confirm completion, the project is ineligible for conventional financing. Some portfolio lenders will still consider the loan, but this is a more challenging scenario — particularly because it suggests the HOA may be unresponsive or underfunded.
Does SB 326 apply to townhomes?
SB 326 applies to common interest developments (CIDs) with three or more attached units. Many townhome projects are structured as CIDs and fall under SB 326 if they have exterior elevated elements maintained by the HOA. However, townhomes where decks and balconies are individually owned and maintained may be outside SB 326’s scope. Check the CC&Rs and the HOA’s inspection status.
We Have the SB 326 Investor Network You Need
DiVita Home Finance has closed condo loans in California projects that other lenders and non-warrantable condo brokers turned away. If you’re under contract on a California condo and your lender just flagged an SB 326 issue, or if you’re about to make an offer and want to know your financing options in advance, call us first.
Call (800) 239-1103 or apply online. Tell us the condo address and HOA — we’ll pull what we can on the project and connect you with the right investor for your situation.
Talk to Michael Directly
DiVita Home Finance | Tiburon, CA | In lending since 2000, founded DiVita Home Finance in 2007. Michael DiVita DRE #01372066 | NMLS #241655. Company DRE #01818285 | NMLS #323700.
💬 Text: (310) 849-9124
