Condo Financing in Tennessee

Warrantable vs. non-warrantable condos

The most important distinction in condo financing is whether the project is "warrantable" — meaning it meets Fannie Mae and Freddie Mac guidelines and can be sold on the secondary market. A warrantable condo qualifies for standard conventional financing at normal rates. A non-warrantable condo requires portfolio or non-QM financing, typically at a higher rate and with a larger down payment.

Common reasons a condo project is non-warrantable:

• More than 35% of units owned by a single investor or entity
• More than 35% of the project is commercial space
• The HOA is involved in active litigation
• More than 15% of units are delinquent on HOA dues
• The project is a hotel-condo or condotel (short-term rental operation)
• The project has fewer than 5 units
• New construction projects where fewer than 51% of units have closed

FHA condo approval

FHA loans for condos require the project to be on HUD's approved condo list, or the lender must complete a Single Unit Approval (SUA) for individual units in unapproved projects. SUA is available for established projects (not new construction) that meet FHA's owner-occupancy and delinquency requirements.

FHA condo approval requirements include: at least 50% owner-occupancy, no more than 10% of units owned by one investor, the project must carry adequate insurance, and the HOA must be financially stable. FHA approval must be renewed periodically — an expired approval means the project needs re-certification before FHA financing can close.

VA condo approval

VA loans for condos require the project to be on VA's approved condo list. VA approval is separate from FHA approval — a project can be FHA-approved but not VA-approved, and vice versa. VA approval requires the project to meet VA's standards for owner-occupancy, HOA financial health, and insurance. Morgan Hardy can check VA approval status for any specific project.

HOA review and questionnaire

For conventional loans, the lender will require the HOA to complete a condo questionnaire. This document collects information about owner-occupancy rates, pending litigation, delinquency rates, insurance coverage, and the HOA's financial reserves. The questionnaire is typically completed by the HOA management company and may take several days to receive.

Requesting the HOA questionnaire early in the process is important — a project that fails the review can derail a closing. Morgan Hardy can identify potential issues before you're under contract.

Tennessee condo markets

Nashville has the largest condo market in Tennessee, with significant inventory in downtown, Midtown, and the Gulch. Knoxville has a smaller condo market concentrated near downtown and the University of Tennessee. Many Smoky Mountain resort condos are condotels and do not qualify for standard residential financing — they require DSCR or portfolio loans.